Organisations using the company secretarial services of London Registrars (http://www.london-registrars.co.uk) may be interested to read of a recent Audit Quality Forum meeting, at which the Financial Reporting Council’s (FRC) Melanie McLaren discussed audit committee reporting and the issue of audit rotation.
The focus of the meeting, entitled Spotlight on Audit Committees was on the work of audit committees, including how they communicate important information about the external audit to investors. McLaren highlighted the importance of changes that have recently been made to the UK Corporate Governance Code, which enhances the work and reporting of audit committees in addition to urging that FTSE 250 audit contracts are regularly tendered.
According to the revised Code, significant issues that have been considered by the committee in relation to the company financial statements should be indicated in committee reports, which should also explain how the effectiveness of the external audit process has been assessed by the committee.
McLaren said that the introduction in the Code of retendering every decade on a”comply or explain” basis seemed to be working, with companies experiencing greater pressure to consider switching. Despite the Competition Commission’s proposals of “mandatory rotation” in its consultation into the audit market, she also stressed the importance of giving time for retendering requirements to work.
McLaren said that despite the presence in audit committees of “qualified, knowledgeable and diligent individuals'”, the Competition Commission regarded audit committee reports as failing to ensure audit quality and the author’s independence. She added that “no real insight” was given by audit committee reports into the working of the committee.
She added that changes to the Code should not be viewed as a threat to audit committees, but instead as an opportunity to demonstrate to investors their soundness.
According to McLaren, there were encouraging signs of greater involvement from investors and more information regarding audits being requested by them. She said that it was “no small task” to alter how audit committees work, but that it was an achievable and the right goal to make audit committees and auditors more concise, relevant and communicative.
The experts in company compliance at London Registrars (http://www.london-registrars.co.uk) are willing to speak to organisations and provide assistance to ensure a successful company secretarial audit, covering a wide range of aspects of corporate governance.