Governance Briefing — May 24, 2023

Executive briefing: On 24 May 2023 the UK Financial Reporting Council (FRC) issued Audit Committees and the External Audit: Minimum Standard. The standard, initially applied on a comply-or-explain basis to FTSE 350 companies, sets out minimum expectations for audit committee appointments, oversight of external auditors, and reporting to shareholders, anticipating the UK government’s audit reform legislation.

Key expectations

Committee leadership. Audit committee chairs must be independent non-executive directors with recent financial experience and maintain succession plans for committee membership.
External auditor oversight. Committees should run transparent tender processes, assess audit quality indicators, and challenge fees, scope, and resources.
Stakeholder reporting. Annual reports must explain how the committee assessed audit quality, managed auditor independence, and addressed significant risks.

Implications for boards

FTSE 350 companies. Boards must evidence alignment with the standard’s expectations prior to statutory enforcement by the Audit, Reporting and Governance Authority.
Public sector entities. Central government and public interest bodies can benchmark their audit committees against the standard to enhance oversight.
Investors. Stewardship teams gain clearer disclosure templates for assessing audit quality and committee effectiveness.

Action checklist

Review audit committee terms of reference, independence, and skills against the minimum standard.
Enhance audit tender documentation, quality indicator tracking, and reporting procedures.
Prepare annual report disclosures covering auditor oversight, key risk responses, and stakeholder engagement.

Sources

Zeph Tech partners with audit committees to benchmark governance, tender oversight, and reporting practices against the FRC’s minimum standard.