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Audit: FRC note on best practice for conducting audit tenders
Practical Law UK Legal Update 1-534-0008 (Approx. 3 pages)
Audit: FRC note on best practice for conducting audit tenders
by Practical Law Corporate
| Published on 10 Jul 2013 • United Kingdom |
The FRC has published a note setting out practical suggestions to assist companies when conducting an audit tender.(Free access.)
On 9 July 2013, the FRC published a note setting out practical suggestions to assist companies when they put their audit contracts out to tender. A new provision was added to the UK Corporate Governance Code in October 2012 requiring FTSE 350 companies to put their external audit contract out to tender every ten years on a comply or explain basis (see Legal update, Corporate Governance Code: amendments to Code and Guidance on Audit Committees). This has led to requests from audit committee chairmen for the FRC to give some practical suggestions on how to conduct the tender.
The FRC has identified a number of steps for conducting an effective tender. These include:
- Setting clear objectives to ensure a focused tender process and consulting major investors on the objectives.
- Selecting audit firms that are right for the particular business based on clear criteria and seeking the views of investors on the firms that should be invited to tender.
- Working with potential auditors to ensure compliance with independence rules.
- Ensuring that the process is led by the audit committee chairman and that access to key personnel is available and coordinated.
- If a questionnaire is used, companies should consider carefully the relevance of each question asked against the objectives of the tender.
- Providing adequate information to prospective auditors so that they can better understand the company's business and focus on key risk areas. Some companies have found it useful to appoint a single contact to manage all information requests, and online data rooms are also being used.
- Making the decision based on audit quality and not price, with the role of the lead audit partner being key. The incumbent audit firm should not be ruled out without good reason.
- Planning the transition from the old to the new auditor (where there will be a change) and allowing sufficient time for an orderly handover.
The FRC said that it is keen to encourage a diversity of approaches rather than recommend one particular path, therefore the note does not constitute guidance.
Many FTSE 350 companies have indicated that they intend to align the timing of a tender with the audit partner rotation period (see What's Market, AGMs: Statement whether or not company anticipates putting audit contract out to tender and when).
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