Ernst and Young’s appointment today of its first non-executive directors marks another major milestone in the ongoing drama surrounding audit governance.
In the three years since the Lehman Brothers collapse, accountancy firms have been under intense regulatory scrutiny culminating in a major overhaul of UK audit. Ernst and Young joins the ranks of several other big accountancy firms who now have non-executive oversight and will go a step further than most by applying these governance reforms globally.
It’s clearly a laudable move, but it does raise some questions about why it has taken quite so long (and required a worldwide economic collapse) for an industry whose very purpose it is to independently advise companies on their governance standards to realise the importance of external perspective.
Surely it is only right and proper that accounting firms create board structures and governance procedures that more closely mimic those of the companies they audit? Not just from the point of view of professional integrity, but from a reputation standpoint. The biggest own goal any brand can score is appearing not to practice what it preaches.
There have been major, fundamental improvements to the audit process in recent years and sector governance has tightened considerably and will continue to tighten. But the fact itself is not enough. Accountancy firms need to better communicate the work that they do, the best practice they adopt and the value they add in order to fully safeguard their reputations in the long term. Without it, they risk the industry being known more for double standards, than standards-bearing.