26 July 2002
In order to prevent Enron or WorldCom-style global accounting scandals in the UK, Hewitt is likely to force firms to appoint independent non-executive directors to their audit committees as part of a drive towards better corporate governance.
The code, which could be drafted for consultation as early as this winter, could also involve the compulsory rotation of audit personnel within the firm responsible for scrutinising a company's accounts.
Hewitt's proposals were revealed in a Parliamentary speech on July 24, shortly after the publication of an interim report on accounting and auditing produced by a panel appointed by the Treasury and the Department for Trade and Industry.
She called for 'tougher mechanisms to reinforce auditor independence' and welcomed the report's call for audit committees to approve the purchase of non-audit services. WorldCom and Enron have been criticised for appointing the same firm, Arthur Andersen, for audit and consultancy services.
But Hewitt refused to back calls for the compulsory rotation of auditing firms. She indicated that it could be enough for firms simply to rotate the auditing personnel dealing with a company.
A Commons' Treasury committee report, published on July 23, had earlier called for compulsory rotation.
The CBI welcomed Hewitt's speech as 'sensible'.
But Prem Sikka, professor of accounting at Essex University, told Public Finance: 'Self-regulation of auditors is unlikely to prevent corporate scandals. Is a member of a firm ever going to point the finger at their colleagues once he or she has assumed responsibility for an audit? The answer is no.'
PFjul2002
