The 2012 UK Corporate Governance (CG) Code (“the Code”) and associated Financial Reporting Council (FRC) Guidance on Audit Committees specify the issues the Audit Committee should consider and the way in which they should report these to the outside world in the annual report. 

The ACCA highlight in their report, 'Enhancing the value of the Audit Committee report', that “the examples are not necessarily best practice but should be seen as illustrative of the way in which Audit Committees are trying to fulfil their responsibilities under the 2012 edition of the UK CG Code”.  Examples are provided in the following areas of Audit Committee disclosure required by the Code: 

• the significant issues that the committee considered in relation to the financial statements, and how these issues were addressed;
• an explanation of how the Audit Committee has assessed the effectiveness of the external audit process;
• information on the approach taken to the appointment or reappointment of the external auditor;
• information on the length of tenure of the current audit firm and information on when a tender was last conducted; and
• if the external auditor provides non-audit services, an explanation of how auditor objectivity and independence is safeguarded. 

The report also looked at additional disclosures that companies made which were not specifically required by the Code such as information on lead partner rotation and outsourcing of internal audit.  A checklist is also provided to guide audit committee reporting in the above areas. 

Additionally, a short analysis is provided comparing current UK practice with the requirements of the United States Securities and Exchange Commission and the Australian Securities Exchange.  The ACCA comment that “it can certainly be argued that UK requirements for audit committee public disclosures appear to be more advanced and more formalised than almost anywhere else in the world.” 

The ACCA will be publishing a follow up paper later in the year examining compliance with the Competition Commission's final decision on remedies for the audit market. This decision includes a recommendation to the FRC that shareholders should be given a vote at the AGM as to whether the Audit Committee Report within the annual report is satisfactory.

The ACCA report follows a project into effective approaches to Audit Committee reporting undertaken by the FRC's Financial Reporting Lab which identified six key themes for Audit Committee chairman to consider in fulfilling their disclosure responsibilities under the Code.

Click for:

• Press release (link to ACCA website).
• ACCA report 'Enhancing the value of the Audit Committee report' (link to ACCA website).
• Our previous UK Accounting Plus story on the project of the FRC's Financial Reporting Lab.