Both the Higgs report on non-executive directors and the Smith paper on audit committee guidance received full endorsement from trade and industry secretary Patricia Hewitt as she revealed the recommendations to the Commons.
The recommendations on corporate governance from the co-ordinating group included an audit committee of at least three members, who should all be independent non-execs with one having significant financial expertise.
It also set out the roles and responsiblities of the committee to include monitoring the integrity of financial statements, reviewing the company’s internal financial controls and risk management systems and reviewing internal audit effectiveness.
The audit committee should also recommend the selection of an external auditor to the board, the terms of engagement and monitor the external auditors performance.
Furthermore, the audit committee will now have a dedicated section in the annual report detailing its roles and responsibilities and the actions it has taken, while the audit committee chairman will be required to attend the AGM to answer questions.
These recommendations will be included into the Combined Code, which should see an airing in the summer.
The co-ordinating group however warned that it may still make it a legal requirement for listed companies to have an audit committee if the recommendations in the Combined Code are ineffective in delivering the desired change.
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