18 October 2002
A report from CIPFA, which assesses the implications of applying the public sector audit model to the private sector, recommended the establishment of an independent body to advise companies on legal, accounting and audit issues.
It also urged companies to appoint a professionally qualified chief finance officer to scrutinise these areas.
Meanwhile, a group of powerful City fund managers this week drafted a provisional code of conduct for companies' audit committees, suggesting radical reforms to the way organisations monitor themselves. Many of the fund managers invest in companies closely involved in public-private partnerships.
CIPFA's study also urges all parties to adopt guidelines on the controversial issue of auditors providing audit and non-audit services to the same client.
The institute said companies should seek permission from their audit committees for their auditors to exceed a threshold for non-audit work.
But it stopped short of recommending a ban on simultaneous provision of multiple services – a situation that critics believe compromised auditor independence at Enron. It stated that the mandatory rotation of auditors was 'not practical for implementation at the present time'.
Vernon Soare, CIPFA's policy and technical director, said: 'It is essential that considerations outlined in the report are given further thought.'
City fund managers, led by Iain Richards, head of corporate governance at Schroders, also suggested limiting non-audit services and said non-executive directors should receive better training to spot off-balance sheet 'wheezes' used by some firms and accountants.
'Unless they know what accountants are up to, they will struggle to do their job correctly,' he claimed.
PFoct2002
