The Financial Reporting Council (FRC) today issues its Review of the implementation and operation of the Audit Firm Governance Code. It considers the progress made in terms of governance of UK audit firms following the Code's implementation, and seeks 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 also calls for the adoption of an independent voice at international level in the firms’ global networks.
The Audit Firm Governance Code was issued in 2010 and provides a formal benchmark of good governance practice against which firms which audit listed companies can report for the benefit of investors.
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.”
Notes to editors:
The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
The specific intended benefits of the 2010 Audit Firm Governance Code were to:
Support firms in their objectives of performing high quality audit work that gives confidence to shareholders
Benefit capital markets by enhancing choice and helping to reduce the risk of a firm exiting the market
Enhance the stature of firms as highly visible exemplars of best practice governance
Enrich firms’ transparency reports
Encourage changes in governance which improve the way that firms are run
Strengthen the regulatory regime by achieving transparency and effective governance without disproportionate regulation.