Independent external auditors should report directly to shareholders and the board

29 July 2002

ICC members from the financial services and insurance industries have recommended good company accounting practices, including the use of truly independent external auditors who report to the shareholders and board of directors.

In a list of recommended practices, the commission said companies should establish effective systems of internal control. These should be reviewed periodically for effectiveness and adjustment.

An independent audit committee of the board of directors should oversee internal accounting activities and deal with the external auditors. The audit committee should report to the company's chief executive officer, the ICC commission suggested.

The ICC experts also advised companies to introduce operating information technology systems that are capable of organizing, analyzing and presented the data needed to implement these best practices.

Although the statement was issued almost two years before the Enron and other corporate failures and subsequent falls in the stock market, the recommendations it makes are especially relevant in today's conditions.

The ICC statement described risk management as a firm's first line of defence against financial disruption, with good personnel its single most critical element. Other sections dealt with sales practices, the availability of credit information, and the role of internal audit, external audit and compliance.

An introduction said: "If large numbers of firms improve their financial practices and safeguards, the global financial system will be strengthened. Companies have no need to wait for implementing legislation or regulatory authorization to put these pragmatic measures into effect."

Click here for the ICC Financial Services and Insurance Commission statement on Best Business Practices to Promote Financial Stability.