QCA: updated Audit Committee Guide published
On September 12, 2019 the Quoted Companies Alliance (QCA) published an updated version of its Audit Committee Guide (Guide). The Guide sets out the QCA’s views of best practice and aims to assist audit committee members and, in particular, the audit committee chair, to be effective in their roles. It focuses on providing general advice and guidance to new audit committee members, who may not yet be entirely familiar with the role of the audit committee and the tasks to be performed by its members. The updated Guide replaces the version published in November 2014 and is a companion to the QCA Corporate Governance Code.
The sections of the Guide and key changes to the 2014 version are set out below.
An effective audit committee – Section one of the Guide states that an affective audit committee is an essential part of an effective board and highlights three key elements.
- Appropriate composition – the Guide suggests that an audit committee’s membership should bring together a range of relevant skills and knowledge for the benefit of the company and ideally include at least two independent non-executive directors.
- Timely information and discussion – the audit committee should be involved throughout the whole annual reporting cycle, and should have sufficient time, and information, to be able to make informed decisions.
- A culture that enables difficult discussions and good decision making – an audit committee’s members should deliver robust and relevant challenge to management, the external auditors and others in a balanced and considered manner.
Roles and responsibility – The Guide reminds companies that although the work of the audit committee naturally is focused upon the preparation of the company’s annual report and accounts, its responsibilities are broader and continue throughout the year to ensure the integrity of a company’s corporate reporting, risk management systems and internal control environment. The Guide provides further insight into the audit committee and its chair’s role and reminds companies that the company secretary is not normally (and should not be) a member of the committee and, unless impractical, should not also be the finance director.
Risk management and internal control – This section has been significantly expanded since the 2014 version of the Guide. It highlights the audit committee’s role in providing support and oversight on the effectiveness of the company’s system of risk management and internal control (which is put into place by the board). It recognises the change in the nature of risks and the range of external stakeholders that companies need to deal with and consider within a dynamic business environment. The audit committee should obtain a clear understanding of threats and opportunities and their potential impact, identify who is responsible for monitoring such risks and how they are monitored. New risks and changes to the impact of risks should be considered at each committee meeting. In addition, the anti-bribery and anti-corruption section in the 2014 version has been removed and the whistleblowing section has been condensed.
Relationship with external auditors – This section of the Guide is new and mostly incorporates guidance from other sections of the 2014 version, along with new provisions on tendering.
The annual cycle – The information in this section remains mostly unchanged from the 2014 version. The Guide emphasises that an audit committee should challenge both the external auditors and the management of the company and should form its own view as to whether to recommend approval of the annual report or other relevant announcements to the board. In addition, the section contains additional guidance concerning new accounting policies.
The audit committee report – The Guide states that an audit committee report should explain how independent oversight of management, risk management and internal controls, internal audit (if applicable) and the external auditors has been undertaken. Additional features of the audit committee report to consider include the company’s policy on auditor rotation, the approach to tendering and appointment of external auditors and the proper operation of a company’s risk and control framework and processes.
The QCA Audit Committee Guide is available to be purchased from the Quoted Companies Alliance.