Independence of auditors vital, conference told

Non-executive directors should stand up and be counted in the interests of good corporate governance and shareholder interests, a conference for accountants held in Dublin heard yesterday.

Sir Robert Smith, author of the Smith report and chairman of the Weir group, told the annual conference of the Institute of Certified Public Accountants in Ireland (CPA) that even the best corporate governance rules in the world could not be fully effective if the board of directors was not up to the job.

Using the infamous corruption scandals of Enron and WorldCom, where allegations of wrongdoing by company directors and auditors plunged global stock markets into turmoil, Sir Robert warned that the independence of audit committees must be paramount.

He said: "If something like Enron or WorldCom happens, you have to have some kind of confrontation. Someone has to stand up and be counted.

"No set of rules in the world can ensure good corporate governance if the character of the board of governors is not up to the job. Someone might be the best accountant in the world, technically, but if they have no backbone, then there is no point on them being on an audit committee."

Sir Robert's report, published in January, is set to become part of the combined code on corporate governance in Britain and will shape the auditing standards of public companies.

Its chief recommendation was the inclusion of no less than three independent non-executive directors on the audit committee, with at least one of them possessing "recent and relevant financial experience". It also stipulated that the company chairman should not be a member.

However, critics of the report believe Sir Robert's insistence on boosting the number of non-executive directors may highlight a dearth of suitably qualified candidates.