As part of the reform of audit and corporate governance in the UK, the government announced in May 2022 that it will give the Audit, Reporting and Governance Authority (ARGA) – the new successor regulator to the FRC – power to impose minimum requirements on audit committees of FTSE 350 companies in relation to the appointment and oversight of auditors. For more information on the audit and corporate governance reforms, see our updated briefing.
In anticipation of ARGA being given these powers by legislation, the FRC has published a draft minimum standard for consultation. The standard sets out the responsibilities of the audit committee in relation to the external audit, in particular with regard to the tendering process, the oversight of the external auditors and reporting to investors on these responsibilities in the annual report. The draft draws on existing FRC publications, including its Guidance on Audit Committees and the Governance Code. The consultation on the standard closes on 8 February 2023.
Until the necessary legislation is passed and ARGA is in place, the FRC will encourage FTSE 350 companies to comply with the final form standard on a comply or explain basis. The government confirmed in its May 2022 response paper that the legislation will also give ARGA powers to monitor compliance with the minimum standard, through review of publicly available information, enhanced powers to require information and reports from audit committees on compliance, and powers to take action in the event of a failure to comply with these new requirements.