The Financial Reporting Council (FRC) has today announced proposals to update and “strengthen” its Audit Firm Governance Code and establish “operational separation” at the Big Four firms.
The proposed changes are aimed at clarifying the role of partnership boards in holding management to account, said the UK accounting watchdog in a statement.
A key proposal is to separate the roles of board chair and senior partners and chief executives in a bid to tackle issues highlighted by a string of high-profile accounting scandals.
The auditing watchdog it would: “establish the boundaries between the responsibilities of independent non-executives (INEs) and Audit Non- Executives in firms with operationally-separate audit practices, currently the ‘Big Four’.”
The FRC said that going forward the Audit Firm Governance Code will apply to firms that audit “significant” numbers of other types of public interest entities as well as the Big Four and other firms auditing FTSE 350 companies.
Although the Big Four firms, EY, Deloitte, KPMG and PwC, have responded “positively” to operational separation, the FRC found that there was still room for improvement.
“Audit firms which have applied the Audit Firm Governance Code have used it as a catalyst for introducing both external challenge into their operations and for improved levels of oversight,” said FRC executive director of regulatory standards Mark Babington.
“These proposals,” Babington continued, “will provide a springboard for further progress in improving audit quality and market resilience.”