Skip to content

15 May, 2025

  • Saved Articles
  • My Account
  • Subscribe
  • Log In
  • Log Out

Board Agenda

  • Governance
  • Strategy
  • Risk
  • Ethics
  • News
  • Insight
    • Categories

      • View all
      • Governance
      • Strategy
      • Risk
      • Ethics
      • Board Expertise
      • finance
      • Technology
    • leadership on AI

      How to get ahead on AI leadership

      The question isn’t how AI will change business—it’s whether leaders can harness it to drive...

    • canada tariffs

      Corporate governance to the fore in Canada

      As Canada responds to the tariff conditions set by the US, companies need to take...

    • AI will transform

      4 ways AI will transform board dynamics

      Opportunities and challenges are arising from the integration of artificial intelligence into corporate governance.

  • Comment
      • View all
    • leadership on AI

      How to get ahead on AI leadership

      The question isn’t how AI will change business—it’s whether leaders can harness it to drive...

    • canada tariffs Corporate governance to the fore in Canada

      As Canada responds to the tariff conditions set by the US, companies need to take...

    • meritocracy Fairness makes for meritocracy

      Favouring actions over persuasion, boards can take small yet extremely effective steps to improve diversity,...

  • Interviews
      • View All Interviews
      • Podcasts
      • Webinars
    • financial sanctions Tariffs chaos drives boardroom focus on resilience

      Business leaders will prioritise the resilience of their organisations in the face of economic upheaval...

    • ai boards Corporate world has a ‘huge appetite’ for artificial intelligence

      AI could change boardrooms to the extent that directors’ duties would change too, a panel...

    • EU non-financial reporting reforms are an ‘opportunity’

      Firms can take advantage of the delayed implementation of CSRD and CSDDD to take stock...

  • Career
  • Resource Centre
      • White Paper Downloads
      • Book Reviews
      • Board & Governance Services
    • Director Reference Guide: Fostering the board-CEO relationship

      This Board Agenda Director Reference Guide on fostering the board-CEO relationship provides practical advice to...

    • Forvis Mazars AI 2025

      Performance Pulse: Are UK businesses prepared for AI?

      Forvis Mazars measured the AI preparedness of more than 300 UK businesses: 97% say they're...

    • Parker review cover

      Improving the Ethnic Diversity of UK Business, Parker Review update 2025

      The 2025 Parker Review update report, supported by EY. Over the past year, significant progress...

  • Events
  • Search by topic
    • Governance
    • Strategy
    • Risk
    • Ethics
    • Regulation
    • ESG
    • Investor Relations
    • Careers
    • Board Expertise
    • finance
    • Technology

Audit committees ‘need a makeover’ to help fix audit

by Gavin Hinks on December 3, 2019

Academics warn that committees require corporate governance expertise, greater independence and sufficient time if they are to ensure high-quality audit.

Committee looking at financial data

Image: Rawpixel.com/Shutterstock

The UK government may have placed audit reform on hold while it goes through the torture of a general election, but others continue to debate and call for improvements to audit committees.

Not least among them is a recent academic paper claiming that if reform is to have any lasting effect, audit committees equally need a makeover.

In an article aimed at resolving the long-standing issue of auditor independence, academics Martin Gelter and Aurelio Gurrea-Martínez honed in on the key problems underlying the functioning of audit.

They said audit committees require attention because of the risk they “hire less strict auditors”. And stakeholders need exacting standards in their audits.

“Unfortunately, audit committees often do not seem to be doing their job in an effective manner since empirical evidence suggests that the audit market penalises auditors for providing investors with value-relevant information that is critical of management,” they wrote.

What to do? The authors offer a number of observations. Audit committees should be comprised of a “majority” of members with expertise in “accounting, audit, finance and corporate governance”. Without that they could fail to spot problems in internal controls.

But there’s another critical issue. Members of the audit committee should be prepared to tell it like it is and make decisions in the interests of investors regardless of the effect on “corporate insiders”. And that raises the issue of beefing up the independence of committee members.

“The system can be improved by increasing the voice and power of shareholders, for example by enhancing the system of proxy voting and the role of proxy advisers,” wrote the authors.

Their final point is that audit committees face heavier workloads than other board members. They need the space to do their jobs and added time.

“Thus along with independence and expertise, availability and commitment are another pillar of an effective audit committee.”

If audits are to be more independent, the authors also propose better governance inside audit firms. They propose more transparency of performance-based metrics for partners; disclosure of how profit pools are structured for non-variable partner pay; public lists of engagement partners for audits; disclosure of non-audit fees alongside the audit fee and the names of the related partners.

High-quality audit

In the UK the corporate governance code already lays out conditions for non-executive independence. But, while guidance on audit committees asks that the “committee as whole” should have the right competence, it only demands that one members has “recent and relevant experience”.

The UK audit industry has been under extreme scrutiny in the past two years following a collection of high-profile corporate collapses. Government-ordered reviews have looked at the regulation of auditors and the functioning of the audit market. Another, the Brydon review, is currently investigating the content of audits.

Various recommendations have been made though government, while indicating an enthusiasm for reform, has yet to place anything before Parliament for consideration.

The Financial Reporting Council, the current audit and corporate disclosure regulator, recent reported that auditors were failing to challenge management. The report said: “Given the pivotal role that challenge of management plays in executing a high-quality audit, firms need to increase urgently their efforts to understand why audit partners and their teams continue underperform in this area.”

David Rule, the FRC’s executive director of supervision, said: “While we see many examples of high-quality audit, our inspectors are still identifying too many audits which require significant improvements.

“Inspections show that challenge of management is a particular area of concern on which audit firms need to focus.”

Audit, auditors and audit committees have unresolved issues, that much is agreed. Until government makes its reform proposals clear, there remains room to influence the debate.

  • Facebook
  • Twitter
  • Google+
  • LinkedIn
  • Mail

Related Posts

  • Governance chiefs lambast 'capricious abandonment' of audit reform
    February 14, 2024
    audit reform call

    Chartered Governance Institute writes open letter calling for Kemi Badenoch to restart reform agenda.

  • New audit committee standards finalised
    May 22, 2023
    Audit ESG reporting

    Role of challenger audit firms and the opinion of investors underlined by new minimum standards.

  • Katie Murray to become chair of Phoenix board audit committee
    July 12, 2022
    retirement

    The pensions savings and life insurance group appointed Murray, who had been serving as a NED, to assume the role in September.

  • Labour commits to audit reform legislation
    September 25, 2023
    audit reform

    Shadow minister for business, Jonathan Reynolds, says Labour will push through audit reform when in office.

For thoughtful journalism, expert insights on corporate governance and an extensive library of reports, guides and tools to help boards and directors navigate the complexities of their roles, subscribe to Board Agenda

audit committee, audit reform, Aurelio Gurrea-Martínez, Financial Reporting Council, Martin Gelter, UK government

Search


Follow Us

Boardroom Intelligence

Stay in the know and register for free to receive our essential Boardroom Intelligence Briefing featuring:

  • Top governance headlines, expert opinion & boardroom insights, exclusive whitepapers & strategy guides, delivered to your inbox every week – Sign up here

 

Most Popular

Featured Resources

wef global risks 2025

The Global Risks Report 2025

The 20th edition of the Global Risks Report reveals an increasingly fractured global...
Supply chain management cover

Strategic Oversight in Supply Chain Management: A Guide for Corporate Boards 2025

Supply chains have become complex, interdependent and opaque and—according to research...
OB-Cyber-Security

Cyber Security: What Boards Need to Know

Maintaining firewalls, protecting servers and filtering malicious emails rarely make...

The IA’S Principles Of Remuneration 2024 2025

This guidance from the Investment Association is aimed at assisting remuneration...
Diligent 2024 leadership tech cover

Leadership, decision-making & the role of technology: Business survey 2024

This research report by Board Agenda and Diligent sheds light on how board directors...

Director Reference Guide: Navigating Conflict in the Boardroom

The 'Director Reference Guide' on navigating conflict in the boardroom provides practical...
Nasdaq 2024 governance report cover

Nasdaq 2024 Global Governance Pulse

This Nasdaq survey gathered data from more than 870 board members, executives, and...

Becoming a non-executive director (4th edition)

Board composition is the subject of much debate, while the role of the non-executive...
art & science brainloop new cover

The Art & Science of Creating an Effective Board

Boards are coming under more scrutiny and pressure than ever before from regulators,...
SAA First time NED guide

First Time Guide for Non-Executive Directors

The role of the non-executive director has never been more vital: to advise, support,...

Register Free

By registering you will be able to access one premium article each month, selected partner newsletters and content, plus updates about our events and podcasts. Register


  • Editors & Contributors
  • Editorial Advisory Board
  • Board & Governance Services
  • Media Marketing Solutions
  • Contact Us
  • About Us
  • Board Director Network
  • Terms & Conditions
  • Privacy Policy
  • Cookies
|

Copyright © 2025 Questor Media Group Ltd.

  • Terms & Conditions
  • Privacy Policy
  • Sitemap