Audit tendering helps improve audit confidence
News types: Guidance
Published: 7 February 2017
Retendering and rotation of auditors, as required by law, helps improve confidence in audit for investors and audit committees whose job it is to appoint them. The Financial Reporting Council’s (FRC) notes on best practice (PDF) published today highlight how audit committees can approach the process to get the best outcome and is based on experiences of audit tenders since the requirement was first introduced into the UK Corporate Governance Code in 2012.
Confidence in audit derives from independent audit committees appointing an auditor that is best able to deliver an independent, high quality audit. The selection process can be time consuming so the FRC recommends involving the whole of the audit committee, discussing with investors which audit firms will be invited to tender, and engaging with firms before the process starts to ensure the right teams are involved.
In order to draw up its best practice guidelines, the FRC held roundtables with the chairs of audit committees that had recently gone through an audit tender process or were about to do so, investors and senior audit engagement partners from the larger audit firms.
Areas where lessons have been learnt include:
-
Timing of a tender – how this coincides with other factors such as Board changes and rotation and retendering requirements throughout the group.
-
Which firms to invite to tender – identifying the need for industry and /or geographic knowledge, and understanding investors and regulators views of individual firms
-
Balancing professional services – how to manage conflicting requirements of different professional services and whether to prioritise audit.
-
Engagement with investors – the timescales of announcing the audit tender process and other milestones in communicating with shareholders.
-
Getting the right audit team – exploring the skills and experience needed from an audit engagement partner.
-
Decision-making approaches – whether to give technical challenges, hold meetings with management and assessing the response to the request for proposal.
“In the UK, and now across Europe, testing the market for audit on a regular basis is required. Feedback from companies that have changed auditors since this requirement was introduced, is that there are benefits to be gained from fresh insight. Even if the current firm is reappointed, the experience of the tender process can reinvigorate the audit approach.”
Notes to editors:
-
The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the Competent Authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.