The Financial Reporting Council (FRC) has published practical guidance for audit committees to help them comply with their obligation, under the UK Corporate Governance Code, to assess the effectiveness of their company’s external audit (section C.3).
The guidance, referred to as a “practice aid” is intended to provide “some” guidance on audit quality and best practice that audit committees may want to consider when they “design or update their own assessment processes”. It is not intended to be definitive and the FRC notes that audit committees do not need to understand or apply all of it but rather should have regard to it as relevant.
- presents an overview of audit quality, highlighting factors that audit committees could consider when making their assessment and steps they could take in doing so;
- describes the possible inputs (sources of evidence) for the assessment;
- discusses the key professional judgements the auditor makes during the audit and how audit committees might assess them; and
- describes three further elements that audit committees can consider when evaluating the quality of their auditor (skills, character and knowledge; mindset and culture; and quality control).
Impact – the guidance is clear that the audit committee’s assessment of the external audit is not expected to be an “audit of the audit”. Neither is the committee expected to perform detailed procedures or make comprehensive enquiries of the auditor about all aspects of the audit. Premium listed companies required to comply, or explain their non-compliance with the Code, will now have a framework within which to assess the scope of their obligation in C.3