UK Corporate Governance Code: The FRC’s key proposed changes

James Barbour, Director, Technical Policy highlights the FRC's proposed changes to the UK Corporate Governance Code.

FRC consultation on implementing the European Union (EU) Audit Legislation

This article highlights the Financial Reporting Council's (FRC) proposals in relation to its proposed revisions to the UK Corporate Governance Code. These revisions relate matters pertaining to the Audit Committee and Auditors and are contained in Section C.3 of the Code.

At code provision C3.1, the Code is revised as follows:

Existing Provision

"The board should establish an audit committee of at least three, or in the case of smaller companies two, independent non-executive directors. In smaller companies the company chairman may be a member of, but not chair, the committee in addition to the independent non-executive directors, provided he or she was considered independent on appointment as chairman. The board should satisfy itself that at least one member of the audit committee has recent and relevant financial experience."

Revised Provision

The board should establish an audit committee of at least three, or in the case of smaller companies two, independent non-executive directors. In smaller companies the company chairman may be a member of, but not chair, the committee in addition to the independent non-executive directors, provided he or she was considered independent on appointment as chairman. The board should satisfy itself that at least one member of the audit committee has competence in accounting and/or auditing. The audit committee as a whole shall have competence relevant to the sector in which the company operates.

At code provision C3.7, the Code is revised as follows:

Existing Provision

"The audit committee should have primary responsibility for making a recommendation on the appointment, reappointment and removal of the external auditors. FTSE 350 companies should put the external audit contract out to tender at least every ten years. If the board does not accept the audit committee's recommendation, it should include in the annual report, and in any papers recommending appointment or reappointment, a statement from the audit committee explaining the recommendation and should set out reasons why the board has taken a different position.

Revised Provision

"If the board does not accept the audit committee's recommendation on the appointment, reappointment and removal of the external auditors, it should include in the annual report, and in any papers recommending appointment or reappointment, a statement from the audit committee explaining the recommendation and should set out reasons why the board has taken a different position."

At code provision C3.8, the Code is revised as follows:

"A separate section of the annual report should describe the work of the committee in discharging its responsibilities. The report should include:

  • the significant issues that the committee considered in relation to the financial statements, and how these issues were addressed;
  • an explanation of how it has assessed the effectiveness of the external audit process and the approach taken to the appointment or reappointment of the external auditor, and information on the length of tenure of the current audit firm, when a tender was last conducted and advance notice of retendering plans; and
  • if the external auditor provides non-audit services, an explanation of how auditor objectivity and independence is safeguarded.

Topics

  • Audit and Assurance

Previous page