The Companies Act 2014 (the Act) section 167, requires all large companies to consider the establishment of an audit committee. Where a company decides not to establish an audit committee, the reason for not doing so must be disclosed in the directors' report, which report forms part of the company's annual financial statements.
Section 167 applies in respect of financial years beginning on or after 1 June 2015. Part 24 investment companies, that is, non-UCITS investment companies, are exempted from section 167 pursuant to section 1387 of the Act. However, notwithstanding that the European Union (Statutory Audits) Regulations 2016 (the Regulations), which came into effect on 17 June 2016, provide an exemption for UCITS and AIFs from the obligation to establish an audit committee under those Regulations, UCITS are within the scope of section 167 of the Act.
Further, that section applies irrespective of the balance sheet amount or the turnover of the PLC for any financial year. Submissions have been made to have the exemption from section 167 of the Act extended to UCITS, but there is no guarantee that this will happen. Boards should therefore consider whether or not to establish an audit committee and where it is decided not to, to ensure that a statement of the reasons for not doing so is included in the directors’ report.
Under section 167 the audit committee, if established, should comprise at least one independent director of the company. The responsibilities of the audit committee include: