On 12 September 2019, the Quoted Companies Alliance (the "QCA") released an updated version of their Audit Committee Guide (the "Guide"), which is the first one since the 2014 release.
The Guide is produced to help audit committee members of AIM companies (and, in particular, the audit committee chair) to be effective in their roles on such committee. It contains concepts of good practice and acts as a companion to the wider QCA Corporate Governance Code as a whole.
Whilst the material and recommendations of the Guide remain broadly similar to the 2014 version, some updates are worth highlighting and are considered below. Companies who have adopted the QCA Corporate Governance Code should review their current audit committee procedures and consider whether any steps need to be taken to ensure that they are compliant with the updated Guide.
The Guide considers the make-up of an effective audit committee and, in a change from the 2014 version, it now prescriptively states that the committee should have, as a minimum, two independent non-executive directors and one member with relevant financial experience.
Roles and Responsibilities
Additional guidance is provided as to the roles and responsibilities of audit committee members. The Guide, in particular, considers the role of the chair and stating that, for example, the chair should have previous experience at a comparable quoted company wherever possible.
Consideration is also given to the role of the finance director and company secretary, pointing out that they should work closely with the chair but not be members of the audit committee, and that the two roles should be held by different people, unless this is impractical for the company in question.
Finally, the Guide also recommends that the Terms of Reference for the committee should be reviewed at least once a year but, ideally, on a more frequent basis.
In another new section of the Guide, this looks at how an audit committee can implement an appropriate system of risk management. Each business must develop their own approach to risk management; however, the need to track an ever evolving risk landscape demands that it not be treated as an annual exercise but instead requires an ongoing process which is considered at each committee meeting.
The key tasks of an audit committee in relation to risk are to understand the threats and opportunities, their potential impact, assign responsibility of monitoring risks and assess any material uncertainties as to the company’s ability to adopt the going concern basis of accounting.
Auditors and Reporting
Extensive guidance can be found in the report in relation to the appointment and work of external auditors. This covers a range of matters from engagement terms to the annual report and accounts. Furthermore, the Guide also offers suggestions on what the audit committee report should cover.