Philips toughens auditing rules

Nick Goodway12 April 2012

PHILIPS has laid down tough new rules governing its relationship with its auditor following scandals and disasters such as Enron and WorldCom. Jan Hommen, chief financial officer of the Dutch electronics group, said: 'We are taking a pioneering role in establishing an unambiguous policy not only in the Netherlands but on a global basis.

'Our proactive approach is a logical step in light of recent events in the corporate world. Philips reports its performance on the basis of maximum transparency and openness.'

The new policy details what Philips considers to be audit and non-audit work. The latter particularly covers tax services and consultancy. The group said that from now on any non-audit job likely to produce fees of more than e250,000 (£160,000) would be put out to tender, and any generating fees of more than e2m would have to be approved by the board's audit committee.

It also lists eight services which the auditor, currently KPMG, cannot provide, including book-keeping, management functions and legal services.

Highlighting the closeness between individuals, Philips said the lead audit partner must change after a maximum of five years and other audit partners after seven years. Audit partners cannot be hired by Philips, or Philips senior managers hired by the auditor, within two years of quitting their respective jobs. The auditor is appointed for three years and the board's audit committee will then report to shareholders in detail and using 'measurable criteria' on its reappointment or replacement.

The audit committee will review the auditor's independence and report on it every year. Audit and non-audit fees paid to the auditor will be disclosed in the annual report, something that British companies are already required to do.

Philips said that its 'self-imposed regulations' went 'far beyond external [regulatory] requirements'.

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