FRC offers advice on conducting effective audit tenders
News types: Guidance
Published: 9 July 2013
PN 067 The Financial Reporting Council (FRC) has published practical suggestions (PDF) to help companies undertake an effective process when they put their audit contracts out to tender.
Following the introduction in the Corporate Governance Code in October 2012 of the provision for FTSE 350 companies to put their audit contract out to tender every ten years on a comply or explain basis, the FRC was asked by Audit Committee chairmen and others to provide some practical examples of how a tender might be conducted. The FRC’s publication has been produced following a series of roundtables which involved Audit Committee chairmen, investors, finance directors and auditors, all of whom shared their views and experiences of the audit process.
The key steps identified to conduct an effective tender are:
Following the introduction in the Corporate Governance Code in October 2012 of the provision for FTSE 350 companies to put their audit contract out to tender every ten years on a comply or explain basis, the FRC was asked by Audit Committee chairmen and others to provide some practical examples of how a tender might be conducted. The FRC’s publication has been produced following a series of roundtables which involved Audit Committee chairmen, investors, finance directors and auditors, all of whom shared their views and experiences of the audit process.
The key steps identified to conduct an effective tender are:
- Establish clearly the objectives for the tender, why it has been initiated and engage with major investors on these points
- Choose which firms to invite to tender based on clear criteria and the views of investors
- Ensure the process is led by the Audit Committee chairman.
- Provide audit firms with adequate information for them to understand the company’s needs.
- Make the decision based on audit quality not price and do not rule out the incumbent auditor without good reason.
- Manage an orderly transition to ensure a seamless handover.
- Ensure the regulatory requirements such as independence rules are met.
- Make use of audit inspection reports
Paul George, Executive Director Conduct, said,
“High quality audit is essential to effective capital markets. Choosing the right auditor requires the periodic testing of the market with clear objectives. We hope this simple publication will provide some useful suggestions to help audit committee chairmen.”
Notes to editors:
The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.