“The purpose of audit is to provide assurance to shareholders regarding the financial reports produced by the management of the companies in which they hold shares. However, other stakeholders such as lenders, suppliers and customers, as well as ratings agencies, also benefit from the assurance audit firms provide.” So noted the Competition and Markets Authority in its market review of the statutory audit market in FTSE 350 firms.

To that end, and in line with new EU requirements, the Financial Reporting Council has published a consultation paper seeking views on its proposed amendments to auditing standards, ethical standards for auditors, the UK Corporate Governance Code and its Guidance for Audit Committees.

Minor proposed amendments to the UK Corporate Governance Code include:

  • that the audit committee as a whole must have competence relevant to the sector in which the company operates;
  • that at least one audit committee member should have recent and relevant financial experience be replaced with a requirement for competence in auditing and/or accounting (C.3.1);
  • that the requirement that every FTSE 350 company puts its audit engagement out to competitive tender every ten years be omitted as this is required elsewhere so would be superfluous in the Code (C.3.7); and
  • that shareholders be informed about future audit tendering plans.

Numerous amendments are proposed to the FRC’s Guidance on Audit Committees, including:

  • that the composition of the audit committee cover sectoral competence;
  • that references to audit re-tendering be removed;
  • that shareholders be informed of future audit plans. Further, where a tender is not actually carried out in line with proposed timings, this be explained in the audit committee section of the annual report; and
  • that the audit committee’s oversight of the external auditor be clarified.

The consultation closes on 11 December 2015.