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October 26, 2011

Audit committee reports fail to meet expectations

The majority of audit committee reports fall short of best practice, according to a joint study by BDO UK and the Institute of Chartered Accountants in England and Wales (ICAEW). 

The report analysed the work of audit committees across 237 listed companies and found that just a third of audit committee reports include details about the effectiveness of external auditors and how this has been assessed.

According to the survey, few audit committee reports manage to make effective disclosure on the extent of threats to independence and objectivity of external auditors and that ‘boiler-plating’ is evident in this area.

Audit and the non-audit services policies were said to often be poorly described and only three out of seven reports refer to the provision of non-audit services by auditors.

“Inconsistent quality and boiler-plating does nothing to reassure investors and our research highlights the significant divide between what is expected of audit committees and where many actually are now,” BDO senior audit partner James Robert said.

ICAEW Head of Corporate Governance Vanessa Jones stressed that in spite of some great examples of audit committee reporting “many audit committees do not maximise the potential to ‘tell the story’ of the work that they undertake throughout the year and this is a real missed opportunity”.

The report also found very few companies provided any information on tendering frequency, the tenure of the incumbent auditor, and any contractual obligations that acted to restrict the audit committee’s choice of external auditor.

The average number of audit committee meetings was three per year, according to the institute’s research.

 

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