Applicable to: All UK FTSE 350 entities, but may be of interest to other entities with Audit Committees
For those companies where it is a requirement to have an audit committee, the responsibilities of the committee and the time commitment from members has increased over a period of years.
In May 2023 the FRC published a Minimum Standard for Audit Committees (the Standard) in relation to the external audit.
The Standard was applied with immediate effect to FTSE 350 companies on, initially, a ‘comply and explain’ basis until such time as legislation is enacted to establish the Audit, Governance and Reporting Authority which will make the Standard mandatory. The Standard, however, may be of interest to other companies which have established an audit committee and wish to apply the Standard as an example of good governance. The Standard has four main areas of focus:
Committee Responsibilities – including a requirement that the company manages its non-audit relationships with audit firms.
Tendering – The tendering process should be led by the Audit Committee and not by executive management. “Challenger” audit firms should not be excluded without good reason and selection criteria should be transparent and non-discriminatory.
Oversight of auditors and audit – Working to create a culture which recognises the work of, and encourages challenge by, the auditor, reviewing whether the auditor has met the agreed audit plan and that the Committee understands the reasons for any changes and obtaining feedback about the conduct of the audit from key people involved, for example the finance director and the head of internal audit, including consideration of the external auditor’s reliance on internal audit.
Reporting – The annual report should describe the work of the Audit Committee, along with a report on the activities the Audit Committee has undertaken to meet the requirements of the Standard.