The FRC recently 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.

These proposals are the FRC's combined response to the audit reform requirements of the EU's Regulation on the statutory audit of public interest entities, the amended Statutory Audit Directive, the Competition and Markets Authority (CMA) Order on statutory audit services for large companies in the UK and some recent changes to international auditing standards.

This article focuses only on the changes proposed to the UK Corporate Governance Code and to the FRC's Guidance on Audit Committees.

UK Corporate Governance Code

Changes are proposed to Section C of the Code on Accountability in the context of audit committees and auditors as follows:

  • The requirement that at least one audit committee member should have recent and relevant financial experience should be replaced by a requirement to have competence in auditing and accounting, and wording should be added requiring the audit committee as a whole to have competence relevant to the sector in which the company operates. These changes may require companies to consider changes to the membership of audit committees
  • The requirement that FTSE 350 companies should put the external audit contract out to tender every 10 years should be deleted as it is now redundant having been superseded by the CMA Order
  • Advance notice of retendering for the audit should be included in the audit committee's report in the annual report.

Guidance on Audit Committees

Fairly wholesale changes have been made to the guidance published in 2012 to take account of the proposed change to the Code set out above and to reflect the Regulation, the Directive and the CMA's Orders and recommendations.  It has also been amended to reduce duplication with elements of the Code and should now be read in conjunction with Section C.3 of the Code.

Changes include, among other things, expanding on the changes relevant to the composition of the audit committee described above and removal of references to audit retendering which, as noted above, have also been removed from the Code.

The consultation is open until 11 December 2015.

The consultation paper Enhancing Confidence in Audit: Proposed Revisions to the Ethical Standard, Auditing Standards, UK Corporate Governance Code and Guidance on Audit Committees can be found here.  Annex 3: Revised UK Corporate Governance Code – Section C.3 can be found here and Annex 4: Revised Guidance on Audit Committees can be found here.

FRC launches Culture Project  
The FRC has launched a market-led initiative to gather practical insight into corporate culture and the role of boards.  Having had initial discussions with stakeholder groups and a roundtable with FTSE-100 Chairs, four workstreams have been identified and the FRC has issued an invitation to contribute views to one or more of the workstreams.

The four areas are:

  • delivering 'Sustainable Success' – the role of the effective board
  • people issues – aligning culture, values, human resource practices and performance reward systems
  • stakeholder issues – relationships between culture and business models, with shareholders, customers and suppliers and the impact on the wider community and environment
  • embedding and assurance – measuring and monitoring culture, the role of internal audit, risk management and public reporting of cultural indicators.

The FRC plans, in due course, to publish a report of the observations gathered, identify best practice and develop practical, market-led resources to help boards across a broad range of sectors and industries take effective action on culture.  The FRC Guidance on Board Effectiveness will also be replaced with new material with culture at the forefront.

The FRC is asking for expressions of interest from those who wish to participate by Friday 30 October.  Further details can be found here.