The FRC attempts to codify the role of audit committees may improve efficiency and choice in the audit market
The UK’s corporate governance regulator, the Financial Reporting Council, is proposing to water down some aspects of the Smith guidance on audit committees to make compliance less onerous.
The first major proposed revision of the Smith guidance says that the audit committee should annually “assess” – rather than have “procedures to ensure” – the independence and objectivity of the external auditor. The FRC says “the existing guidance to ensure independence and objectivity could be interpreted as setting a high barrier for relationships between the company and the audit firm.”
The FRC also proposes to change the Smith guidance’s recommendation that the audit committee should consider whether there are safeguards in place to “ensure that there is no threat to objectivity” when an audit firm provides non-audit services, to “reducing” such potential threats “to an acceptable level”.
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