UK: non-executives on E&Y's global advisory board

Earlier this year the Audit Firm Governance Code was published. Principle C1 of the Code provides that a firm should:

appoint independent non-executives who through their involvement collectively enhance shareholder confidence in the public interest aspects of the firm’s decision making, stakeholder dialogue and management of reputational risks including those in the firm’s businesses that are not otherwise effectively addressed by regulation".

The Financial Times newspaper reports - see here - that Ernst and Young is to appoint four non-executive directors to its global advisory board and that it is the first of the 'big four' firms to announce plans to do so. Further information is available in E&Y's press release: see here.

Australia: the ASX Corporate Governance Principles and Recommendations

Earlier this year the Australian Securities Exchange Corporate Governance Council published for consultation proposed changes to the second edition of its Corporate Governance Principles and Recommendations. The submissions have been published (here) along with the Council's response (here, pdf). The majority of submissions provided strong support for the Council's changes, which address, for example, board structure and diversity and the remuneration committee.

A copy of those Principles and Recommendations which have been amended is available here (pdf). A comparative table showing the Principles and Recommendations before and after the changes is available here (pdf). An overview of the changes is available here (pdf).

UK: choice in the audit market - FRC progress report

The Financial Reporting Council has published its fifth progress report on the implementation of the recommendations of the Market Participants Group (here, pdf) on promoting choice in the UK audit market: see here (pdf).

The report summarises recent developments, including the publication of the audit firm governance code, and also describes the results of recent FRC research. It is noted that the revised Guidance to Audit committees has had a limited impact on disclosure and, with regard to market concentration, the FRC reports:

It is apparent that, despite previous increases in the number of FTSE 350 companies retaining a non‐Big Four auditor from 2006 – 2009, this trend has now ceased and may even have reversed. The February 2010 figures also show a slight drop in the number of smaller listed companies retaining a non‐Big Four auditor.

[Of] the thirteen FTSE 350 companies the [Professional Oversight Board] is aware have changed auditor since February 2008, none has switched from a Big Four to a non‐Big Four firm, and two which previously retained a non‐Big Four auditor have changed to a Big Four firm. There appears therefore to be little indication that concentration in the audit market is reducing or is likely to reduce in the near future".

UK: Audit Firm Governance Code published

The ICAEW's Audit Firm Governance Working Group has today published a governance code for firms auditing public interest entities: see here. The following firms, which between them audit approximately 95% of companies listed on the main market of the London Stock Exchange, will be subject to the code: Baker Tilly, BDO, Deloitte, Ernst & Young, Grant Thornton, KPMG, PKF and PricewaterhouseCoopers.

The code was prepared at the request of the Financial Reporting Council, as part of its audit choice project, and will operate on the 'comply or explain' basis. The code's purpose, to quote from its introduction, is to:

... provide a formal benchmark of good governance practice against which firms which audit listed companies can report for the benefit of shareholders in such companies".

The Code has six sections (leadership, values, independent non-executives, operations, reporting and dialogue) and, like the UK's Combined Code on Corporate Governance, contains principles and provisions. For example, principle C.1. provides:

A firm should appoint independent non-executives who through their involvement collectively enhance shareholder confidence in the public interest aspects of the firm’s decision making, stakeholder dialogue and management of reputational risks including those in the firm’s businesses that are not otherwise effectively addressed by regulation".

For further information see: ICAEW Working Group press release (pdf) and background information | FRC audit choice project |