Pilot project on Audit Committee reporting
The FRC has recently created the Audit & Assurance Lab, which seeks to promote best practice in a confidential environment by bringing together audit committee members, companies, investors and audit firms in a collaborative environment to understand their perspectives on an issue. It does not form part of the FRC’s policy, interpreting or monitoring requirements.
Audit committees have a key role promoting confidence in audit in respect of the audit relationship, the quality of the audit and the reporting thereof. There has been a major change in the responsibilities of audit committees over the past number of years, given the UK Corporate Governance Code requirement for audit committee reporting from 2012, rotation and retendering requirements and the implementation of the new independence requirements in 2016.
The project will review companies across the listed market, but this will depend on the response from audit committees, companies and investors. It will explore how investors’ confidence in audit is enhanced by, and supported through:
- the external reporting by audit committees in the annual report, in accordance with the UK Corporate Governance Code (Phase 1). This includes consideration of improvements that have been made in recent years; and
- auditors’ reports to audit committees, including how they can better support audit committee reporting (Phase 2).
The Phase 1 project report will be published in time for consideration for December 2017 year-ends. This will focus on the good practice elements of existing audit committee reporting, and encourage audit committees to consider adopting the practices if appropriate, in the context of their own reporting. The Phase 2 project report will be published in the first half of 2018.
If you would like to be involved - individual meetings with participants are expected to be up to an hour in length (from now until early September) - please contact:
Audit and Actuarial Regulation
Tel: +44 (0)20 7492 2428
See further details in the recently-launched pilot project on audit committee reporting.
Developments in Audit 2016-17
Related to the work set out above the FRC has also reported on its review of audit quality in the 2016-17 Developments in Audit Report.
Setting out what is being done to drive improvements to audit quality, the report includes an overview of the FRC’s work in setting auditing policy and standards, how the FRC is working to enhance the effectiveness of audit committees, its oversight of the profession, and its audit monitoring and enforcement activity.
The audit market and confidence in it in the UK is changing significantly, with the impact of audit tendering and rotation requirements seeing greater competition on quality between the biggest firms. Greater transparency of audit has been achieved through extended reporting, now being rolled out for more audits. Broadened perspectives on audit quality through the challenge and support of independent non-executives at the larger audit firms ensure a focus on sustained improvement.
Investor and public confidence in audit quality remains vulnerable where circumstances indicate a failure by auditors to be sufficiently independent or to provide robust challenge. The FRC has enhanced its enforcement procedures and is working to improve the speed of action. The FRC has issued more than £14.2 million of sanctions on auditors and audit firms in 2016/17 and sets out the outcomes and lessons to be learnt from concluded investigations.
Moving forward the FRC will focus on promoting scepticism through standards and practice; quality control standards; auditors’ adherence to the spirit as well as the latter of independence requirements; the impact of mandatory rotation on quality and fees as it is adopted across the market; harnessing technology; and the culture of the audit firms in support of audit quality.
A summary copy of the Report is available via this link: