Corporate Governance

• Corporate Governance


  The means by which a company is operated and controlled
• Hough & Co, a listed company, is currently reviewing its corporate governance practices to ensure they are compliant with regulations
• Corporate governance policies Hough & Co has in place


  • Remuneration committee comprising 3 non-executive directors
  • Audit committee comprising the finance director, the chief executive and 2 non-executive directors
  • Separate people taking on the roles of chair and chief executive
• Functions of audit committees

  • Planning the annual external audit
  • Reviewing the effectiveness of internal financial controls
  • Reviewing and monitoring the external auditor's independence
• Remuneration committee


  Ensures no director is involved in setting his own pay and the pay that is set is at an appropriate level
• Key elements of the Code of ethics are: Conceptual framework, Fundamental principles, Threats and safeguards, Confidentiality, Conflicts of Interest
• Independence (in order to be a trusted auditor)


  Freedom from situations and relationships where objectivity would be perceived to be impaired by a reasonable and informed third party
• Approaches to the Conceptual Framework


  • Rules Based
  • Principle Based
• Principle Based Conceptual Framework

  • Flexible - can be used in unusual or rapidly changing circumstances
  • Can be applied across borders
  • Accountant uses professional judgement
  • Requires compliance with the spirit of the guidance
  • Can still include rules for common situations
• Fundamental ethical principles


  • Integrity
  • Objectivity
  • Professional competence and due care
  • Confidentiality
  • Professional Behaviour
• Threats to independence & Objectivity

  • Self Interest
  • Gifts and hospitality
  • Employment with the client
  • Overdue fees
• Safeguards against threats to independence

  • For fee dependency: Engagement quality control review

  For gifts/hospitality: Document on audit file even if refused

  For owning shares: Any member of the audit team or immediate family must sell shares or be removed from the team

  For overdue fees: Do not perform further work until arrangements have been made for payment

  For business relationships: Unless immaterial no safeguard can reduce the threat so can't be done

  For potential employment with an audit client: Firm must be notified and the individual removed from the audit. Perform a review of any significant judgements made by the individual