Watchdog issues review of audit governance code

THE FINANCIAL Reporting Council (FRC) has issued its review of the implementation and operation of the Audit Firm Governance Code.

It reflects on the progress of the governance of UK audit firms following the code’s implementation, and seeks further feedback on strengthening the code to put more focus on the public interest in – and governance of – audit work within the firms’ total business.

The FRC has also issued a clarion call for the adoption of an independent voice at international level in the firms’ global networks.

Issued in 2010, the Audit Firm Governance Code provides a formal benchmark of good governance practice against which firms which audit listed companies can report for the benefit of investors.

FRC chief executive, Stephen Haddrill, said: “The major accountancy firms are of great importance to the UK economy, both as major businesses in their own right and through the impact they have on the broader health of the financial system.

“Adoption of the Audit Firm Governance Code is not a regulatory requirement, but the firms to which it applies have used it as a catalyst for improved governance of their businesses.

“However, there is scope for the action already taken to be built upon. The report suggests that the principle of external challenge be adopted in the international network organisations as well as at national level. As the firms grow their consultancy businesses this challenge should remain focused on the audit practice as well as across the firm as a whole.

“The code itself should more sharply define the public interest, particularly by explicitly recognising the importance of audit quality. It should continue to be sufficiently flexible to allow firms to apply it in ways which best suit their governance structure.”

The consultation can be accessed here