Describes the processes and practices that create effective audit committees
The European Confederation of Directors’ Associations, ecoDa, published on 30 August 2011 a paper titled “Audit Committee Guidance for European Companies” (the Guidance). The Guidance aims to be a “practical tool” for the audit committees of companies whose securities are admitted to trading on a regulated market, such as the Main Market of the London Stock Exchange. The Guidance can be read here.
The focus of the Guidance is on compliance with the requirements of the European Statutory Audit Directive, which is implemented in the UK through Disclosure and Transparency Rule 7 of the FSA Handbook. The Guidance covers:
- Composition of the audit committee and audit committee procedures
- Monitoring the financial reporting process, the effectiveness of internal control and risk management systems and the effectiveness of internal audit
- Monitoring the statutory audit and appointing the statutory auditor
- Audit independence and non-audit services.
The Guidance contains useful comment and information on audit committee processes and practices; the working group that put the Guidance together was headed by a KPMG partner and included the Head of Corporate Governance at the Institute of Directors, and so the Guidance is more practical and focused than that produced by some European governance groups.
Companies with a premium listing of securities on the London Stock Exchange are required to “comply or explain” with the UK Corporate Governance Code, which covers audit committees and auditors at section C.3. The Financial Reporting Council guidance on audit committees was updated in December 2010 and other relevant material is on the FRC website under “Going Concern and Financial Reporting” here. ICSA has updated its Audit Committee terms of reference and those can be read here. The Institute of Chartered Accountants in England and Wales has also produced audit committee guidance, which can be downloaded here.
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