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Audit reform has been a subject of debate for decades. One of the most influential reports on this topic – ‘The Future Development of Auditing’ – was written in 1992 (almost 30 years ago!).
That is why we are committed today to ensuring meaningful reform takes shape this time, for the good of our profession and society.
This is never an easy process though and, as my colleague Stephen Griggs said in his last blog, while some audit reforms require legislation and further consultation, others are being taken forward quickly by the regulator and the firms voluntarily.
An important step here was the announcement earlier this summer from the Financial Reporting Council (FRC) on its principles for operational separation of the audit practices of the Big Four firms. We noted at the time that we welcomed this clarity and have been liaising with the regulator and our teams internally to bring about these changes.
We recently became the first of the Big Four to announce some of our intended changes around our governance structure since the principles were released, with the establishment of an independent Audit Governance Board (AGB).
The move is the initial phase of Deloitte’s implementation of the principles. By appointing Margaret, Baroness Ford of Cunninghame OBE, as independent non-executive chair, and with a majority of independent non-executives, including Jim Coyle, Almira Delibegovic-Broome QC and Shirley Garrood, the AGB will have responsibility for providing independent oversight of the UK audit practice.
Effective from 1 January 2021, the AGB will focus on the policies and procedures for improving audit quality and ensuring the FRC’s objectives and desired outcomes for operational separation are met. This includes ensuring that people in the audit business are focused, above all, on the delivery of high-quality audits in the public interest – both today and in the future (something we’ll explore further in an upcoming blog). Their role will also include oversight of the policies and processes for ensuring that audit partner remuneration reflects their contribution to audit quality appropriately.
We’ve long recognised the beneﬁts of strong governance separated from executive management, and first voluntarily appointed independent non-executives as members of our main Board in the UK in 2011. We appreciate that independent challenge and oversight of Executive teams, as well as a firm’s willingness to listen and adapt to advice, are vital to manage the economic and regulatory challenges that lie ahead.
Robust governance is crucial for modern businesses and so we truly welcome the rigour the independent non-executives bring to the table. They have a wealth of knowledge and experience from their previous and current roles, which we proactively draw upon, and they bring an external perspective that ensures continuous focus on the public interest.
I regularly meet with the independent non-executives myself, mainly to discuss the audit reform debate and other public policy matters, and appreciate their questioning and insights. Just one example is the input they’ve provided to the ﬁrm’s responses to each of the audit reform consultations to date, with their views and suggestions reﬂected in our ﬁnal submissions.
We recognise the need to be more transparent about our audit business and demonstrate that audit quality remains our priority. Another way we’ve been doing so is through our annual Transparency Reports and our Audit Annual General Meetings, which we held for the first time last year.
We’re also launching a new Colleague Advisory Forum, to support engagement on governance. Made up of colleagues from a range of grades and parts of Deloitte, it will provide a more diverse perspective and help inform decision-making.
No silver bullet
However, while we support and appreciate the importance of governance changes, we do not believe they are a silver bullet.
Instead, we have stressed they must also be considered alongside a wider package of change, including in areas such as corporate reporting, the role of directors, the evolution of the audit product and the regulatory environment in which we operate.
After all, widespread audit reform is needed if we are to better meet society’s expectations and restore trust in the profession. We know it’s going to take much more than this.
Simon is UK head of public policy and regulation for Deloitte. Working closely with colleagues globally, he leads the firm’s UK and North and South Europe (NSE) responses to public policy and regulatory matters. Simon has recently taken on the role of Global Public Policy Leader for Deloitte. Simon is an audit partner and has over 24 years’ experience working with entities in the financial services and infrastructure sectors, including several in the FTSE100. He has also worked across multiple regulatory and compliance projects, and undertaken a number of interim chief financial officer roles in large listed businesses. He is a qualified chartered accountant and has a double honours degree in manufacturing, engineering and economics.