The world’s four biggest accounting firms are to appoint non-executive directors after coming under growing pressure from regulators over governance.Ernst & Young, which along with law firm Linklaters has been been accused of providing “window dressing” for Lehman Brothers’ risky financial structures, today became the first of the “big four” auditors to announce its intention to appoint in non-executive directors to its global advisory board. Four independent directors, with experience in regulation, business, public service or academia, will be named after the summer. The decision comes after a new audit firm governance code was published by the Financial Reporting Council and the Institute of Chartered Accountants in England and Wales in January. The code recommends that audit firms appoint non-executive directors in the UK, to avoid a rerun of the collapse of Enron and its auditor, Arthur Andersen.
“Although the code technically applies only to our UK business, as a globally integrated organisation, we believe it is most appropriate for us to implement the code’s provisions on a global basis also,” said Jim Turley, global chairman and chief executive of Ernst & Young. “Including individuals from outside Ernst & Young on the global advisory council will bring to the senior leadership of our global organisation the benefit of significant outside perspectives and views.”
KPMG intends to recruit a similar number of independent directors to its European business around the end of September, when its financial year ends. PricewaterhouseCoopers plans at least three new appointments in the next few weeks, who will serve on a newly created third board, the public interest body, that will exist alongside its executive and supervisory boards,; and Deloitte is in the process of identifying three non-executive directors for its UK firm.
The role of accountants in the financial crisis came to prominence again last week when the Financial Services Authority and the FRC questioned about the financial firms it audited in the run-up to the banking crisis.