The Audit Firm Governance (AFG) working
group is seeking public feedback to help shape a governance code
for UK firms that audit public interest entities.

The consultation paper asks 20 questions on a range of topics
from risk management and governance structures to issues of scope,
implementation and monitoring.

The governance code is one of the key recommendations in last
year’s Financial Reporting Council (FRC) Market Participants Group
report.

The aim of the project is to improve choice in the audit market
and mitigate the risk of a major firm collapsing and exiting.

“This project can help to promote confidence in, and choice
among, accountancy firms that play a major public interest role in
those markets,” FRC chairman Christopher Hogg said. “It deserves to
be taken seriously.”

One requirement of the code being mooted is that firms introduce
independent non-executives on a governance board and that
independent non-executives form part of board committees covering
audit, remuneration and nomination matters. Some firms already
reflect this requirement in their current governance
structures.

In October, the US Treasury Advisory Committee on the Auditing
Profession also recommended the inclusion of independent board
members.

A particular problem highlighted in the consultation is the
impact of auditor independence and liability issues on
non-executives. UK auditor independence and liability requirements
are different to those in the US and this could impact upon British
firms with Security and Exchange Commission-registered clients.

Firms, investors, listed companies and other stakeholders are
invited to submit their views by 31 January 2009.

Robert Hodgkinson, AFG project director and executive director
of technical issues at the Institute of Chartered Accountants in
England and Wales, added: “During the first half of 2009 we will
prepare a draft code for further consultation. This
evidence-gathering phase will be crucial in producing the draft
code, which is why it is important that those who have views submit
them.”

Jorge Alvarez