On 12 September 2019 the Quoted Companies Alliance (QCA) published an updated version of its Audit Committee Guide (the Guide). It is intended by the QCA to be a "companion" to the QCA Corporate Governance Code and sets out the QCA's best-practice guidance for audit committees.

This is an important update particularly for companies who have adopted the QCA Corporate Governance Code (predominantly AIM listed companies who, from 28 September 2018, were required to adopt a recognised corporate governance code – please see our previous insight here for more detail).

The Guide makes changes to, and significantly expands in some areas on, the previous 2014 version. Some of the key recommendations of the new Guide are briefly summarised below.

Companies who have adopted the QCA Corporate Governance Code should review the current operations of their Audit Committee (including composition and terms of reference) and be ready to update their practice to address the new Guide.

Effective audit committee

The Guide recommends for there to be an appropriate balance of skills and experience on an audit committee, with at least one member having recent financial experience – and also suggests that committees are made up of at least two independent non-executive directors. This is more prescriptive than previous QCA guidance, so companies should review the current composition of their audit committees.

Committee roles and responsibilities

The Guide contains expanded guidance on the roles of the members of the audit committee and, in particular, the chair. For example, it states that the Terms of Reference for the committee should be reviewed at least annually (or even on a more frequent basis).

Whilst the Guide advises that the chair works closely with the company's finance director and company secretary, it is not advised that either of these board members form part of the audit committee itself. Unless impractical, the person serving as company secretary should not also be the finance director.

Risk management and internal controls

The Guide provides further detail on implementing appropriate internal controls and a system of risk management. Businesses are encouraged to develop their own approach to risk management, which should be embedded in day-to-day management and decision making practices.

The Guide recommends that the identification, assessment and monitoring of risks and controls should not be treated as a one-off or annual exercise, but carried out regularly as an ongoing process.

Relationship with external auditors

Detailed guidance on the appointment of external auditors, in particular the terms of their engagement and fees, auditor independence and tendering (including frequency) is contained in the Guide.

When tendering for external auditors, the Guide recommends that companies give due consideration to the length of tenure of their auditors.

Audit committee report

The Guide advises that the audit committee report contained in the annual report and accounts of a company should be clear and concise – and articulate the steps that the committee has taken to fulfil its role (including addressing auditor rotation, appointment, tendering, the risk and control framework and internal assurance function).

Standard "boilerplate" text should be avoided, as well as information which is irrelevant or already detailed sufficiently elsewhere in the company's accounts.