Governance and Leadership

Published: 8 July 2024

1 minute read


We promote good governance and leadership at the largest audit firms because well-governed and well-run audit firms are more likely to deliver consistently high-quality audits and to be operationally and financially resilient. The firms we regulate audit the UK’s largest companies and we want the public interest to be a key consideration in decision-making.

Audit Firm Governance Code

The Audit Firm Governance Code (AFGC) establishes a set of principles for good governance in large partnerships, supported by more detailed provisions which are followed on a comply or explain basis. The AFGC applies across the whole audit firm, not just the audit practice. Key elements of the AFGC include a requirement for audit firms to appoint independent non-executives (INEs) and to establish governance structures for holding the leadership to account and limiting individual power.

All audit firms in Tiers 1 and 2 fall within the scope of the 2022 Audit Firm Goverance Code, because they audit at least 20 public interest entities or at least one FTSE 350 company.

We assess compliance with the AFGC and lead the FRC’s relationship with the INEs. Our assessments aim to raise governance standards within audit firms. The Governance and Leadership pillar supports the AMS risk and resilience pillar with monitoring compliance with the Principles of Operational Separation.

We aim to identify good practice as well as gaps and weaknesses in firms’ governance and leadership arrangements. We provide feedback to the firms concerned and seek their commitment to addressing any issues we identify. We share good practice with other firms on an anonymous basis to encourage improvement in their own ways of working.

Pre-appointment meetings

We conduct pre-appointment meetings with INE candidates and candidates for key roles within firms, such as the senior/managing partner. Once appointed, we hold regular engagement meetings with tier one INEs on a firm by firm basis. We organise roundtables which bring INEs from across the firms together and enable them to share good practice and challenges with fellow INEs.

Transparency Reports

We monitor whether firms are complying with their obligation to publish transparency reports. We review the content of tier one firms’ transparency reports against legal requirements and the AFGC and provide feedback to the firms. We also assess whether transparency reports are fair, balanced and understandable overall.

Audit Committees

We will begin reviewing FTSE 350 audit committee practice against the new standard, Audit Committees and External Audit: Minimum Standard.