Deloitte will set up an audit governance board, making it the first of the Big Four accounting firms to make headway with demands from the UK regulator.
The audit governance board will be effective from 1 January 2021. It will be chaired by Baroness Margaret Ford, who currently chairs Scottish media group STV and real estate investment trust New River.
It comes after the Financial Reporting Council told the Big Four – Deloitte, EY, KPMG, and PwC – they have until the 2024 to operationally separate their auditing sections. The watchdog stopped short of demanding a full break-up of the firms, however.
A major shake-up, it came after repeated scandals in the auditing industry. KPMG was contracting group Carillion’s auditor before it collapsed in 2018. Retailer BHS failed on PwC’s watch and EY was responsible for the accounts of collapsed travel firm Thomas Cook.
More recently, the failure of German payments firm Wirecard drew attention to its auditor EY.
Board will help operational separation
Deloitte’s creation of an audit governance board is in line with FRC demands. It said in a statement today that the board will “focus on the policies and procedures for improving audit quality”.
The firm added that the board will ensure the FRC’s “objectives of, and desired outcomes for, operational separation are met”.
The FRC told the firms they should ringfence their auditing arms’ finances. The firms are expected to outline their plans by October, but will have until 2024 to put them into effect.
Richard Houston, senior partner and chief executive of Deloitte UK, said: “We recognise the need to be more transparent about our audit business and demonstrate that audit quality remains our number one priority.”
As well as bringing in Ford, current Deloitte independent non-executives Jim Coyle and Almira Delibegovic-Broome will join the board. Shirley Garrood, former chief financial officer at Henderson Group, will also join.
“We welcome the diverse and extensive experience and independent rigour these high calibre individuals will bring to the AGB and our audit business,” said Houston.