Guidance on Audit Committees

The Financial Reporting Council’s Guidance on Audit Committees (‘the Guidance’) is designed to assist company boards in making suitable arrangements for their audit committees, and to assist directors serving on audit committees in carrying out their role. It is intended to assist Boards when implementing the relevant provisions of the UK Corporate Governance Code ("the Code").

Premium listed companies are required by the Listing Rules to state the extent to which they comply with the Code whilst unlisted companies may voluntarily do so and by extension follow the Guidance. The most recent version of the Guidance was published in June 2016

The Guidance provides recommendations on the audit committee’s establishment and effectiveness, relationship with the board, role and responsibilities and communications with shareholders. 

In May 2023 the Financial Reporting Council (FRC) issued a Minimum Standard for audit committees in relation to their oversight responsibilities for the external audit.  In May 2023 the FRC launched a con­sulta­tion on changes to the Code. The FRC has stated that the revised Code is expected to apply for periods commencing on or after 1 January 2025. The FRC plans to update the Guidance to align with the revised Code and the Minimum Standard. 

Establishment and Effectiveness of the audit committee

Membership should be at least two independent non-executive directors if below the FTSE 350 index or at least three independent non-executive directors if part of the FTSE 350. The chair of the board should not be a member. At least one member should have recent and relevant financial experience. The audit committee as a whole should have competence relevant to the sector in which the company operates. The role and responsibilities should be set out in written terms of reference. Meetings should be held as often as required, but there should be no fewer than three for each financial year. The audit committee and board should review annually the effectiveness of the audit committee.  The audit committee should report on the number of audit committee meetings in the audit committee report.

The size, skills, experience and balance of the audit committee should be adequate to deal with the complexity and risk of the business and its industry. The management of the company should provide all necessary information, training and support to enable the audit committee to play its role successfully. The remuneration package should be consistent with the level of work and expertise required from the audit committee. 

Relationship with the Board

As a sub-committee of the board, the role of the audit committee is defined by the board. The audit committee performs its work on behalf of and should report how it has performed its role and its findings to the board. If any risk management and internal control responsibilities are delegated to different committees the board should consider the impact of splitting those responsibilities.

Role and Responsibilities

The audit committee will have oversight of financial reporting matters, the workings of both internal and external auditors, and procedures for whistleblowing, internal controls and risk management systems. The board has ultimate responsibility for an organisation’s risk management and internal control systems, but the board may delegate to the audit committee some functions to assist the board in meeting this responsibility. 

Any financial report that requires board approval should be reviewed by the audit committee. Except to the extent that this is expressly dealt with by the board or risk committee, the audit committee should review and recommend to the board the disclosures included in the annual report in relation to internal control, risk management and the viability statement.

If delegated this responsibility by the board, the audit committee should review the annual report to determine whether, taken as a whole, it is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s position and performance, business model and strategy.  

Communications with Shareholders

The Guidance recommends that the audit committee should report in a separate section, signed by its chairman, about its work. This is both to highlight its role and to confer authority without usurping the role of the board.

When following the Guidance, the audit committee must always be mindful that, through open dialogue and fostering excellent working relationships with stakeholders, its role can be performed effectively. The chairman of the audit committee should be present at the AGM to answer questions on the separate section of the annual report describing the audit committee’s activities and matters within the scope of the audit committee’s responsibilities.  


The Guidance outlines disclosure recommendations in the audit com­mit­tee report in addition to the Code requirements. These include:

  • a summary of the role of the audit committee;
  • how the audit committee composition requirements have been addressed, and the name and qualifications of all members of the audit committee during the period, if not provided elsewhere;
  • number of meetings;
  • how the performance evaluation of the audit committee has been conducted;
  • the current external audit partner name, and for how long the partner has held the role;
  • the committee's policy for approval of non-audit services;
  • the audit fees for the statutory audit of the company's consolidated financial statements and the fees paid to the auditor and its network firms for audit related services and other non-audit services, including the ratio of audit to non-audit work;
  • for each significant engagement, or category of engagements, an explanation of the services provided and why the audit committee concluded that it was in the interests of the company to purchase them from the external auditor;
  • an explanation of how the committee has assessed the effectiveness of internal audit and satisfied itself that the quality, experience and expertise of the function is appropriate for the business;
  • the nature and extent of interaction (if any) with the FRC's Corporate Reporting Review team; and
  • when a company's audit has been reviewed by the FRC's Audit Quality Review team, disclosures about significant findings and the resulting actions they and the auditors plan to take. This disclosure should not include the audit quality category awarded.

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