The Financial Reporting Council (FRC) has published a Minimum Standard for the audit committees of FTSE 350 companies in relation to external audit. This follows the consultation on the draft standard launched last November (see Corporate e-bulletin 2022/19 for more details). The FRC has also published feedback on the consultation, containing a summary of the responses received.
The Minimum Standard addresses issues identified by the Competition and Markets Authority in its 2019 study on the UK statutory audit services market. In the light of these issues, and as part of the reform of audit and corporate governance, 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.
The Minimum Standard draws together text from existing publications including the UK Corporate Governance Code and the FRC’s Guidance on Audit Committees. It covers areas such as the external audit tender process (which the audit committee should lead), the oversight of the external auditor and the disclosures to be included in the annual report on the work of the audit committee.
The Minimum Standard takes effect immediately, operating on a “comply or explain” basis until such time as the ARGA is created. Once the ARGA is established, the Minimum Standard will apply to FTSE 350 companies on a mandatory basis and the ARGA will have powers to monitor compliance. In its consultation on changes to the Governance Code published in May 2023, the FRC noted its intention for the Minimum Standard to apply on a “comply or explain” basis to non FTSE 350 companies which report on the Governance Code, even though these companies do not fall within the scope of the mandatory regime.