FRC: Investor confidence enhanced by good practice audit committee reporting
18 December 2017
Audit Committee reports create trust and confidence among investors according to a new report from the FRC. Investors welcome that the interests of the company’s shareholders are represented in matters of financial reporting, external and internal audit, and internal control.
Investors gain valuable insight into the effectiveness of audit committees and the quality and rigour of their work from the reports which they have been obliged to provide in the company’s annual report, since 2012.However investors and audit committees consider that lengthy, compliance driven reports risk hiding key information. Investors encourage ‘comply or explain’ reporting instead. Furthermore investors and audit committee chairs recognise that there is scope for more engagement between them.
The report is a pilot project of the FRC’s Audit and Assurance Lab, which encourages audit committees, companies, investors and auditors to collaborate on best practice on audit related issues.
This Phase 1 report, which looks at external reporting by audit committees, highlights that investors particularly look to the audit committee, to give them confidence in the appointment of the external auditor, to monitor the auditor’s independence and objectivity and promote audit quality. Phase 2 will review external auditors’ reports to audit committees.
Many investors would welcome more specific reporting on:
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upcoming and recent audit tenders and the approach to audit quality and independence;
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the justification of non-audit services;
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the rationale for financial reporting judgements, and the committee’s responsibility for internal control and risk management; and
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the outcome of the committee’s own effectiveness reviews.
Full press release
Full report
© FRC
