BEIS has recently published its consultation paper on restoring trust in audit and corporate governance. The paper contains a wide range of proposals which are designed to strengthen the UK’s legal framework for major companies (public interest entities or PIEs) and the way in which they are audited.
We have now published a summary of the consultation paper and a series of posts on some aspects of the consultation which are likely to be of most interest to corporates. Our summary is available at https://www.burges-salmon.com/news-and-insight/legal-updates/corporate/corporate-governance-and-audit-a-wide-ranging-programme-of-reforms/
Our fourth post looks at the proposed introduction of an Audit and Assurance Policy. If adopted this will provide a three year rolling forward look on a company’s approach to the audit and assurance of its reporting.
The introduction of this new reporting requirement is intended to provide an opportunity for companies to explain:
- their approach to obtaining assurance on company reporting beyond that which is required by the annual company audit
- their approach to internal audit
- any policies the company has in relation to the appointment of the external auditor
What new disclosures will be required? The policy is likely to include the following new disclosures as a minimum:
- An explanation of what independent assurance, if any, the company intends to obtain over the following three year period in relation to the annual report and other company disclosures beyond that required by statutory audit
- A description of the company’s internal auditing and assurance processes
- A description of what policies the company has in relation to the tendering of external audit services
- An explanation of whether, and if so how, shareholder and employee views have been taken into account in the preparation of the Audit and Assurance Policy
Frequency of reporting: The consultation asks for views on whether the policy should be published annually or at least once every three years.
Will shareholders have a vote on the new policy? Yes. If this proposal is implemented, a policy published by an issuer with a premium listing will be subject to an advisory shareholder vote.
Which companies will need to publish an Audit and Assurance Policy? Initially only issuers with a premium listing will be subject to this new reporting requirement.
How has this proposal been received? The ICAEW has published its own Audit and Assurance Policy Report which comments that: "There is clear support for this Policy. It offers a real opportunity to improve trust and should be a central element in audit reform. It provides the impetus to redefine how audit and assurance are delivered, by whom, what they cover, and to what standards, igniting a debate about the roles of a wider range of existing and new providers, their competencies and potential contributions." For further details see https://www.icaew.com/insights/viewpoints-on-the-news/2021/mar-2021/audit-and-assurance-policy-icaew-calls-on-companies-to-deliver
“Companies that publish and implement an Audit and Assurance Policy will provide their stakeholders with a more thorough understanding of their principal risks and instil greater confidence in the assurance activities in place to mitigate them.”