Publication of principal risks & audit plan for engagement with shareholders

Original recommendation

The Brydon Review recommended that the directors’ Risk Report should be published prior to the audit committee meeting at which the scope of the next audit is determined and endorsed, leaving sufficient time for shareholders to comment. Alongside, it also recommended that the audit committee should publish a formal invitation to shareholders to express any requests they have regarding the areas of emphasis they wish the auditor to incorporate in the audit plan. Additionally it recommended that the audit committee should state the auditor’s proposed materiality levels for the forthcoming audit with this invitation. (Source: Brydon 9.1.4)


The Government agrees (Section 7.3) that a formal mechanism should be established to enable audit committees to gather shareholder views on the audit plan. The Government is clear, however, that shareholder views should be purely advisory in nature and supplemental to the auditor’s to ensure that the auditor retains autonomy for the way the audit is conducted. While a wide range of risks affecting the audited entity will be of interest to shareholders, the auditor should not be required to consider proposals which fall outside of the scope of the company audit.

The proposals support the view that shareholders would benefit from having access to the latest assessment of principal risks but the Government believes that the audit committee should only be expected to make an additional disclosure if there has been a material change to the principal risks facing the company since those already disclosed in the last annual or interim report. Where suggestions for consideration from shareholders go wider than issues that can be considered as part of the company audit (for example business or strategic risks), these could be considered as part of the proposed Audit and Assurance Policy.

The audit committee would take responsibility for setting out in its report in the annual report which shareholder suggestions put forward for consideration had been accepted or rejected by the auditor.

Initially it is proposed that this should apply only to the audit committees of premium listed companies and be introduced through a change to the UK Corporate Governance Code (and/or associated guidance for audit committees).

Government response

The Government believes that the most appropriate way to encourage shareholder engagement with audits is to include appropriate provisions in the audit committee requirements that ARGA will have the power to put in place. Those powers will need to be somewhat wider than those proposed in the White Paper to allow the new audit committee requirements to cover the ability for shareholders to consider and respond on the audit plan and to consider the risk report. The changes would also enable greater engagement with the auditor at the Annual General Meeting (AGM) of the company.

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