It found that Smith’s recommendations on audit committees, included in the final version of the combined code, were largely a reflection of best practice within the UK’s larger listed companies.
The report was commissioned by the Auditing Practices Board and undertaken by former ICAEW secretary general John Collier. It looked into the practical application of the APB’s statement of auditing standards 610 on communication, introduced at the end of last year, but also considered the longer-term consequences of the Smith guidance.
In interviews with the group finance director, audit committee chairman and lead partner from the external auditor of 10 large listed companies, Collier found that some saw the increased responsibilities of audit committees as the beginning of a ‘supervisory board’.
The audit committee chairman is expected to become a more significant figure, with greater reliance placed on their judgement of the integrity of the company’s operations. The chairman’s relationship with the FD will also become critically important.
Demands on audit committee members are expected to increase, so much so that a non-executive chairman of the committee will no longer have the time to serve as a full-time executive for another major company.
The survey also touched on the subject of auditor independence and found that, for those companies asked, non-audit work was increasingly being awarded to audit firms.
As far as the external auditors’ report to the committee was concerned, some felt the large amount of detail provided could sometimes cloud the important issues.
‘The reports provided by the external auditor are fine but they can be too wordy,’ said one CFO. Another said: ‘I would like to see it reduced in length so that it concentrates more on key issues.’
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