The UK Financial Reporting Council (FRC) has published practical suggestions to help companies undertake an efficient process when putting their audit contracts out to tender.
This follows the publication of the revised Corporate Governance Code in 2012, which mandates FTSE 350 companies to put their audit contract out to tender every ten years on a "comply or explain" basis.
In response the FRC was asked by the audit committee chairmen and other stakeholders to provide a practical example of how to conduct a tender.
The FRC produced the practical suggestions after a series of roundtables involving audit committee chairmen, investors, finance directors and auditors sharing their views and expertise on the audit tendering process.
The key steps identified by the FRC to conduct an effective tender are:
- Establish clearly the objectives for the tender, why it has been initiated and engage with major investors on these points;
- Choose which firms to invite to tender based on clear criteria and the views of investors;
- Ensure the process is led by the audit committee chairman;
- Provide audit firms with adequate information for them to understand the company’s needs;
- Make the decision based on audit quality not price and do not rule out the incumbent auditor without good reason;
- Manage an orderly transition to ensure a seamless handover;
- Ensure the regulatory requirements such as independence rules are met;
- Make use of audit inspection reports.
FRC conduct committee executive director Paul George said: "Choosing the right auditor requires the periodic testing of the market with clear objectives. We hope this simple publication will provide some useful suggestions to help audit committee chairmen."