IoD warns against adoption of mandatory audit committees

EU proposals to make audit committees a mandatory requirement for all companies could prove counter-productive, the Institute of Directors (IoD) warned today.

The plans, set out in the proposed EU Statutory Audit Directive, could make directors reluctant to serve on audit committees and would undermine the UK’s traditional ‘comply or explain’ approach to corporate governance, the IoD said.

The UK currently works on a voluntary best practice basis, with audit committees scrutinising accountancy procedures and internal and external risks to the company.

The European Parliament’s Legal Affairs Committee is due to discuss bringing an element of compulsion to UK companies’ audit procedures tomorrow.

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The IoD’s director general, Miles Templeman, said directors were well aware of the need for companies to have effective audit committees and making them mandatory was unnecessary.

“One of the main drivers for these proposals appears to be the desire to bring the EU into line with US law, particularly Sarbanes-Oxley [guidance],” he said. “But even the US does not go as far as these provisions.”