RegulationCorporate GovernanceFirms face non-exec demand in combined code push

Firms face non-exec demand in combined code push

Applying the combined code on corporate governance to accounting firms can improve audit quality and prevent the collapse of a major firm according to regulators

The Financial Reporting Council is considering making it a mandatory
requirement for firms to recruit outsiders as independent non-executive
directors.

The regulator believes that applying the combined code on corporate
governance to accounting firms can improve audit quality and prevent the
collapse of a major firm.

The idea was one of the recommendations listed by the FRC’s market
participants group in its interim report, and still has to survive a
consultation process if it is to take effect. But senior sources at the FRC have
voiced strong backing for the move.

Though the Big Four have separate committees for setting remuneration of
major partners, those committees are in some case made up of partners in
executive roles, though the arrangements vary greatly across the major firms.

It is not clear whether corporate governance arrangements, designed to
protect investors, are necessary in partnerships where the partners are the
investors.

Firms defended their governance arrangements and said that any changes to
governance would merely be an exercise in codifying current practices.

‘We publish audited accounts, appoint two non-executive advisers to the
management board and have a partnership committee,’ said Grant Thornton’s Steve
Maslin.

‘Accounting firms do have governance in place. The consultation may be there
to codify the things that firms are already doing,’ he added.

A Big Four firm source said: ‘If those who have such strong views on what we
have done had taken a look at our accounts they will see that we have checks and
balances. I don’t think it will be a big job to apply the combined code to
firms.’

Maslin said the main area where change may be possible would be the
requirement to appoint an independent assessor of a firm’s commitment to audit
quality.

‘The owners of shares in audit clients may want reassurance of quality fears,
so we could see a  non-executive appointed to make sure that the best audit
partners are rewarded rather than the best audit sellers,’ Maslin said.

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