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FRC offers advice on conducting effective audit tenders

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09 Jul 2013

The Financial Reporting Council (FRC) has today published guidance as to how to conduct an effective audit tender. The guidance has been created in response to requests from audit committee chairmen and others to provide some practical examples as to how an audit tender might be conducted. The guidance is aimed at assisting the boards of FTSE 350 companies to meet the new UK Corporate Governance Code provision on putting their audit contract out to tender every ten years on a comply or explain basis.

The FRC guidance has been developed from a series of roundtables which involved audit committee chairmen, investors, finance directors and auditors. 

In its publication ‘Audit Tenders: Notes on best practice’ the FRC highlights that research conducted in 2009 and 2011 suggested that “in many cases audit tenders were driven and led by the Finance Director” whereas they would like to see them driven by the Audit Committee in line with the “spirit” of the UK Corporate Governance Code.  They comment:

…best practice is clearly that the Audit Committee and its Chairman take the lead and have the final say on the recommendation to the Board

The FRC guidance also stresses the need for the tender decision to be based on the quality of the audit that would be performed and not the price charged and the auditor selected should be the right fit for the business.

The FRC publication highlights that the key steps to conduct an effective tender are:

  • Be clear what you want to achieve and talk to major shareholders early on.
  • Develop clear criteria that are right for the business - reputation alone is not sufficient. Seek investor views.
  • Work with potential auditors to ensure they are free to compete under independence rules.
  • Audit committee leadership is essential.
  • Access to key personnel needs to be available and coordinated.
  • Put audit quality, not price, at the top of your list. 
  • The role of the lead audit partner is key.
  • Don’t rule out incumbents without good reason.
  • Allow sufficient time for an orderly handover.  Plan the transition.

Click for:

FRC press release (link to FRC website)

FRC publication ‘Audit Tenders: Notes on best practice’ (link to FRC website)

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