Commenting on the FRC’s statement on operational separation, published earlier today, Hywel Ball, EY UK Chair, says:
“We are making good progress towards implementing plans for the operational separation of our UK audit practice. Among a number of upcoming changes, we are currently recruiting for two new independent non-executives for a majority-independent audit board which will be in place by 1 July this year.
“We continue to engage with the FRC on the application of the principles for operational separation. In some instances, we are going beyond what the principles require. For example, over 95% of the revenues generated by our proposed audit business are restricted to services directly required to support the audit – higher than the 75% minimum required by the FRC.
“Our proposals support our focus on delivering the highest levels of audit quality and strengthening accountability and oversight. They also follow sustained investment in audit quality and our ongoing work to provide assurance amid the uncertainties of COVID-19.
“We are looking forward to the Government’s forthcoming consultation on the future of UK corporate governance and audit, which is an opportunity to make progress on the vital wider package of reform measures – such as the establishment of a new regulator and a UK version of Sarbanes Oxley to hold directors accountable for governance. The experience in the US is that these reforms can build long-term value, improve trust and resilience, and ultimately reduce the cost of capital. This value increase far outweighs the cost of additional regulation.
“To be effective, these much-needed measures must be delivered together rather than piecemeal. Operational separation must be accompanied by changes in the wider framework. The UK has led the world on accounting standards and corporate governance for over a century and these are key parts of the UK’s attractiveness as a place to do business. It’s vital the Government maintains momentum on corporate governance and audit reform to continue this legacy and ensure the UK remains competitive and attractive in this decade and beyond.”