The audit regulator in the United Kingdom is calling on the top 350 companies on the London Stock Exchange to put their audit out for bid every 10 years.

The U.K. Financial Reporting Council is making changes to its U.K. Corporate Governance Code and Stewardship Code that are intended to promote accountability throughout the investment chain. Among the changes, the FRC is calling on FTSE 350 companies, or the largest 350 companies by market capitalization on the London exchange, to re-tender their external audit contract at least every 10 years.

The code, which takes effect Oct. 1, does not require companies to hire a new auditor after each tendering, but at minimum to put the contract out for bid. FRC said the objective of the requirement is to assure a high quality, effective audit. The regulator plans to hold discussions with companies, auditors, and investors to determine whether it should issue guidance on tendering the audit.

In addition, the new governance code calls on audit committees to provide shareholders with information on how the audit committee has carried out its duties, including how it assessed the effectiveness of the external audit. The code also directs boards to confirm that the annual report and accounts represent a complete, fair, balanced and understandable picture of the company's financial condition, to ensure that narrative sections are consistent with financial statements. If companies fail to follow some provision of the code, they are expected to explain why.

FRC Chairman Baroness Hogg said in a statement that the changes are designed to provide greater insight into what boards and audit committees are doing to promote investor interests. “We have aimed to keep these revisions to a minimum and change only those elements of the codes where consultation indicated real improvements could be made,” said Hogg.

The FRC is the United Kingdom's independent regulator responsible for corporate governance and reporting. It sets a framework for codes and standards for accounting, auditing, actuarial, and investor communities. 

The European Union has not yet decided on a legislative proposal it introduced last year to require auditor rotation on some mandatory cycle. The Public Company Accounting Oversight Board in the United States continues to deliberate feedback to a concept release asking whether it should propose mandatory rotation. The concept release asks for ideas on whether mandatory rotation would cause auditors to become more skeptical, more objective, and more independent of their audit clients, or what other regulatory solution might be more effective if rotation is not the answer. The PCAOB is holding a roundtable session in Houston on Oct. 18 to continue gathering feedback.

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