Part of the audit committee’s role is in relation to the annual report and ensuring that the appropriate corporate governance disclosures have been made. With changes in the reporting landscape, there is increasing focus on audit committee and auditor reports. Practice varies largely by company. The Audit Committee Institute performs research into audit committee reporting to provide information on trends and best practice.
A ‘Conversation with Investors’ provided an opportunity for FTSE100 audit committee chairs to discuss audit committee and investor dialogue with three representatives from the investor community – Dr Daniel Summerfield (USS Investment Management Ltd.), Deborah Taylor (Barclays Equity Research) and Andy Griffiths (The Investor Forum). Our summary note provides an overview of the key points discussed.
The Financial Reporting Council’s (FRC’s) Financial Reporting Lab have published a ‘Lab Implementation Study: Reporting of Audit Committees’, looking at how companies have responded to investor needs when publishing their audit committee reports in response to the 2012 UK Corporate Governance Code revisions.
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The 2013 reporting season saw audit committees come to grips with the new reporting requirements relating to how the audit committee discharges its duties. It also saw the auditors report and the audit committees report expand in relation to the significant issues considered in relation to the financial statements.
The Audit Committee Institute performed a survey of FTSE 350 company annual reports, focusing on the disclosures made in regards to the assessment of the effectiveness of the external audit process; the approach taken to appointment and tenure of the auditor; and the safeguards to auditor independence and objectivity.
The revised 2012 UK Corporate Governance Code sets out that a separate section of the annual report should describe the work of the audit committee in discharging its responsibilities, including, inter alia, an explanation of how it has assessed the effectiveness of the external audit process.
Some key findings were:
The UK Corporate Governance Code requires disclosures about the length of tenure of the external auditor and when the last tender was performed, as well as the audit committee’s approach to external auditor appointment. We found that the level of disclosure varied between companies:
The UK Corporate Governance Code also proposes an explanation of how auditor objectivity and independence is safeguarded if non-audit services are provided by the external auditor.
63% of audit committees use a pre-approval system, delegating approval of non-audit services.
For further detail on the findings and also some examples of disclosures made in audit committee reports please download our survey.
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We have also performed a separate survey of audit committee and auditor reports, focusing on the disclosures made by both the audit committee and the auditor. Some of the key highlights found were:
The most common risks were impairment, taxation, provisions and revenue recognition – areas that can be subjective and that can apply across a wide range of types of businesses.
For further details on our findings and some illustrative disclosures please download our survey.
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