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Deloitte UK first to confirm audit split plans

14 September: Responding to FRC demands for an operational separation of audit from the rest of the firm’s activities, Deloitte has become the first of the Big Four to announce the formation of an independent audit governance structure.

From 1 January 2021, Deloitte’s independent Audit Governance Board (AGB) will be responsible for providing independent oversight of the firm’s UK audit practice.

In a statement, Deloitte confirmed the AGB will focus on policies and procedures for improving audit quality and ensuring the Financial Reporting Council’s (FRC) operational separation measures are met.

Once Deloitte’s AGB is formed Baroness Ford, Chair of STV and New River REIT, will be its first independent non-executive chair. According to the statement, the board will have a majority of independent non-executive directors, including Jim Coyle, Almira Delibegovic-Broome QC and Shirley Garrood.

In July the FRC announced that it expected Deloitte, EY, KPMG and PwC to separate their auditing divisions from the rest of their operations by June 2024 – a move ICAEW Chief Executive Michael Izza labelled a “pragmatic response” to the calls for greater clarity around the independence of auditors. 

By 23 October 2020, the Big Four firms are required to submit an implementation plan to the FRC setting out operational separation proposals.

Seeking transparency and audit quality

Commenting on the creation of the AGB Richard Houston, senior partner and chief executive of Deloitte UK, called the board “central” to the firm’s new governance framework and a key step in the operational separation of its audit business from the wider firm.

“We recognise the need to be more transparent about our audit business and demonstrate that audit quality remains our number one priority,” said Houston. “Our governance changes are an important part of this, and we welcome the diverse and extensive experience and independent rigour these high calibre individuals will bring to the AGB and our audit business.

Houston also confirmed that Deloitte will continue interacting with the FRC on the best ways to implement further changes to our governance and reporting structures.

In a list of “desired outcomes” published in July to accompany the separation plans, the FRC called for the total amount of profits distributed to audit partners to not “persistently exceed” the contribution to profits made by the audit practice. It also stated that auditors should be “protected” from internal influences that could divert their focus away from audit quality, encouraged ethical behaviour, openness, teamwork, challenge and professional scepticism among auditors, and also called on them to act in the public interest and work for the benefit of shareholders of audited entities and wider society.

Deloitte’s current UK Oversight Board (UKOB), which has been in place since 2017, will now sit alongside the AGB and oversee non-audit related and “certain firm-wide matters” for Deloitte’s UK Practice.