Fresh crises is brewing between the Financial Reporting Council (FRC) and shareholders as the Council has set registration with it as part of conditions for shareholders of public companies to qualify as audit committee members. FRC, in a Draft Audit Regulation 2020, said with commencement of the regulation, activities of the Statutory Audit, including that of the audit committee members would be regulated by the Council.
According to the new draft rule, every auditor, audit firm, other assurance providers, and audit committee member “shall register with the Council from the commencement of these regulations.” However, shareholders have risen against the new regulation.
While kicking against the regulation, shareholders under the aegis of New Dimension Shareholders Association (NDSA) claimed that the Council is not well advised on its powers, authority and limitations, adding that there is the need to expunge all the sections relating to audit committee position from the draft regulation. The association, in a letter to FRC signed by its president, Mr. Patrick Ajudua, said that asking members of the audit committee to register with the Council is unknown to law. The letter stated: “Section 3.1 of the draft audit regulation is in conflict with section 359 (4 &5) of the Companies and Allied Matters Act (CAMA)which requires that any member may nominate a shareholder to audit committee as a member by giving notice in writing of such nomination. It did not say that shareholders must first register with FRC. “Therefore, asking members to the audit committee to register with the Council is ultra-vires and unknown to law.” On keeping register of audit committee members, the association said: “Shareholders duly nominated under sec 359 (5) of CAMA owe no obligation to forward their names, addresses and website to you.” Where the Council said that audit committee members that fail to comply with any of the duties imposed by the regulations could be suspended by FRC, the association noted: “The Council doesn’t have power over audit committee members because they neither nominate them, approve their nomination nor being reported to by the committee.” The role and qualification of audit committee members have always been a subject of debate between the Council and shareholders. FRC had in 2016 said that shareholders seeking to occupy the position of audit committee chairmen must be members of any certified professional accounting body in the country. The Council had argued that professional accountants are more reliable, while their education and training allow for their judgement to be relied upon, a position shareholders kicked against.