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Application provision

1.1 Unless otherwise stated, this Part applies to:

  1. (1) a CRR firm;
  2. (2) a UK Solvency II firm;
  3. (3) in accordance with Insurance General Application 3, the Society, as modified by 3; and
  4. (4) in accordance with Insurance General Application 3, managing agents, as modified by 3.

2.1

17/06/2016

Subject to 2.3, a firm must have an audit committee which meets the criteria set out in 2.2 and which is responsible for performing the functions set out in 2.4.

Additional Notes


[Note: Art. 39(1) (part) of the Statutory Audit Directive]

2.2

10/12/2018

The criteria referred to in 2.1 are:

  1. (1) the audit committee must be a committee of the governing body of the firm;
  2. (2) the audit committee must be composed only of non-executive directors;
  3. (3) at least one member of the audit committee must have competence in accounting and/or auditing;
  4. (4) the members of the audit committee as a whole must have competence relevant to the sector in which the firm is operating;
  5. (5) a majority of the members, including the chair, of the audit committee of a firm must be independent of the firm provided that:
    1. (a) the firm is not significant; or
    2. (b) the firm is a significant subsidiary undertaking of a parent undertaking and all members of the parent undertaking’s audit committee are independent of the parent undertaking;
  6. (6) subject to (5)(b), all members of the audit committee of a firm that is significant must be independent of the firm; and
  7. (7) the chair of the audit committee must be appointed by its members and must be independent of the firm.

Additional Notes


[Note: Art. 39(1) (part) of the Statutory Audit Directive]

2.3

17/06/2016

A firm may combine its audit committee with its risk committee (if applicable) provided that:

  1. (1) the firm is not significant; and
  2. (2) the members of the combined committee have the knowledge, skills and expertise required for the exercise of the functions of the risk committee and the audit committee.

Additional Notes


[Note: Art. 76(3) CRD]

2.4

17/06/2016

A firm must ensure that its audit committee performs at least the following functions:

  1. (1) informs the governing body of the firm of the outcome of the statutory audit and explains how the statutory audit contributed to the integrity of financial reporting and what the role of the audit committee was in that process;
  2. (2) monitors the financial reporting process and submits recommendations or proposals to ensure its integrity;
  3. (3) monitors the effectiveness of the firm’s internal quality control and risk management systems and, where applicable, its internal audit, regarding the financial reporting of the firm, without breaching its independence;
  4. (4) monitors the statutory audit of the annual and consolidated financial statements, in particular, its performance, taking into account, where applicable, any findings and conclusions of the Financial Reporting Council Limited pursuant to Article 26(6) of the Statutory Audit Regulation;
  5. (5) reviews and monitors the independence of the statutory auditor or the audit firm in accordance with, where applicable, paragraphs 2(3), 2(4), 3, 4(1), 4(2), 5 to 8 and 10 to 12 of Schedule 1 to the Statutory Auditors and Third Country Auditors Regulations 2016 (SI 2016/XXX) and, where applicable, Article 6 of the Statutory Audit Regulation, and in particular the suitability of the provision of non-audit services to the firm in accordance with Article 5 of the Statutory Audit Regulation; and
  6. (6) is responsible for the procedure for the selection of the statutory auditor or audit firm and recommends the statutory auditor or the audit firm to be appointed, where applicable, in accordance with Article 16 of the Statutory Audit Regulation, except when Article 16(8) of the Statutory Audit Regulation is applied.

Additional Notes


[Note: Art. 39(6) of the Statutory Audit Directive]