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Why a governance code for auditors is a good thing

22 Jan 10

But partners need to practise what they preach to their listed company clients

This week, the Audit Firm Governance Code was launched. The Code, which introduces a formal benchmark of good governance practice to the largest audit firms, was chaired by a past president of ICAS, Norman Murray.

Initially, a major source of scepticism was the notion of introducing a Combined Code style set of provisions to entities that are owner-managed, rather than owned by shareholders.

However, I believe that the Code will make a positive contribution to the level of transparency in the audit industry. Crucial to this will be the appointment, for the first time, of independent non-executives to the firms affected.

They can provide a liaison and initiate dialogue with the stakeholders of audit firms that partners themselves may currently find difficult. In a sector where reputation is of huge importance, independent communication can play a major role in challenging negative perceptions and addressing issues before they begin to pose problems for the firm or the profession.

Making it work, of course, will be important. Partners at the major firms need to ensure that they practise what they preach to their listed company clients – if independent non-executives are to be truly effective, they need to be given the scope to use their judgment and not just make up the numbers around the boardroom table.

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Anton Colella