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FRC publishes an Audit and Assurance Lab project report into Audit Committee Reporting

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20 Dec 2017

The Financial Reporting Council (FRC) has published a report by its Audit and Assurance Lab on Audit Committee Reporting.

In July 2017, the FRC announced a project to be undertaken by its newly-formed Audit and Assurance Lab which looked into the role of Audit Committee reporting in promoting audit quality.

The report on Audit Committee reporting is the first phase of this project and explores how investors’ confidence in audit is enhanced by, and audit quality promoted through, external reporting by audit committees in the annual report and accounts. The report focuses on good practice elements of existing audit committee reporting and encourages audit committees to consider adopting these good practices.

Areas of the audit committee report that this report explores, including “best practice examples” in each case, include:

  • disclosure regarding the external auditor:
    • appointment and tendering – where investors seek confirmation in the audit committee report that quality is paramount, and want to understand the audit committee’s plans for tendering; and
    • independence and objectivity, effectiveness – where investors expect audit committees to provide insight into its assessment of the effectiveness of the external audit process;
  • reporting on significant issues – where investors want disclosures to provide context and quantification; a description of the actions the audit committee has taken during the year; the audit committee’s conclusion and the underlying reasons for that, plus relevant cross-references to elsewhere in the audit committee report; and
  • internal control, risk management systems, and internal audit – where investors seek clarity on the role the audit committee takes, plus helpful cross-referencing to elsewhere in the annual report where these issues are covered.

The report also discusses the quality of engagement between investors and audit committees and how this can be improved, both within the audit committee report and through other means, such as meeting the audit committee chair at governance roadshows.

The second phase of the project will focus on the reporting provided to audit committees by external auditors, including how auditors can help audit committees with their own public reporting. It is expected to report in the first half of 2018.

A press release and the full report, Audit Committee Reporting, are available on the FRC website.

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