Deloitte plans independent scrutiny of auditor pay
21 Nov 2019
Deloitte has struck out ahead of its Big Four rivals with plans to ring-fence auditor pay and governance, in response to concerns about potential conflicts of interest
21 Nov 2019
From the firm’s next reward cycle, auditor pay levels will be reviewed by its independent non-executive directors (INEs) and there will be a separate governance structure for the audit practice.
The business, energy and industrial strategy (BEIS) select committee, and independent reviews, have been highly critical of the fact that the Big Four have historically decided remuneration for partners based on a division of all the firm’s revenues, from both audit and non-audit services.
The committee has called for audit to be split from non-audit business, on the grounds that this would encourage greater professional scepticism on the audits of companies which are also clients for other services.
Deloitte, in its response to the Competition and Markets Authority (CMA) review, argued against a formal separation, stating this would make it harder to use specialist expertise across projects and would reduce the resilience of the audit practice.
However, the firm has now indicated that it intends to introduce a separate governance structure for its audit work.
Stephen Griggs, Deloitte UK managing partner audit & assurance, said: ‘We have been consistent in our support for reform. We remain committed to playing our role in delivering change that embraces audit quality, improves choice and restores trust.
‘As outlined in our CMA submission, one such measure includes the implementation of a stronger, fully accountable governance structure around the audit practice, which seeks to address perceived issues around incentives and conflicts, and preserves resilience.
‘This would have an independent chair and majority INE board, clear reporting obligations to regulators, oversight of policies linking partner and staff remuneration to audit quality and oversight of policies monitoring independence and conflicts.’
According to its CMA response, Deloitte also intends the new audit board to provide Disclosures akin to a listed company together with an annual report and an AGM.