NEDs in Audit Committees

What does serving on a UK audit committee actually involve for a Non-Executive Director, what specific responsibilities does the FRC UK Corporate Governance Code allocate to audit committees, what does the “recent and relevant financial experience” requirement under the Disclosure Guidance and Transparency Rules genuinely demand of committee members, and how should NEDs and the boards that recruit them think about audit committee work as the most operationally demanding committee responsibility in UK corporate governance?

The audit committee has become the most operationally demanding committee in UK corporate governance. Where remuneration committees meet a handful of times a year on relatively bounded questions, and nomination committees engage intensively only during succession events, the audit committee carries year-round responsibility for some of the most consequential matters that come before any board: the integrity of the company’s financial reporting, the effectiveness of internal controls, the quality of the external audit, the independence of the auditor, the management of principal risks, and increasingly the firm’s response to whistleblowing concerns where the responsibility has been allocated to the audit committee rather than to a separate body. The work has intensified materially over the past decade as a series of corporate failures — Carillion, Patisserie Valerie, BHS — drove successive iterations of the UK Corporate Governance Code, the FRC’s Guidance on Audit Committees, and the Disclosure Guidance and Transparency Rules to expect more substantive engagement from audit committee members.

For Non-Executive Directors, audit committee service represents both the most demanding and the most rewarding committee work available on UK boards. The demands are substantial: a working understanding of accounting standards sufficient to engage substantively with year-end judgements; the personal credibility to challenge auditors, finance teams, and management on technical matters where the executive view may be incomplete; the time commitment to read materials thoroughly rather than skim them; and the willingness to push back where pushing back creates friction with executives or other directors. The rewards are equally substantial: the opportunity to contribute to one of the genuinely consequential governance functions, the personal development that comes from engaging with the most technically rigorous board work, and the increasing market recognition that experienced audit committee chairs and members carry — translating into both compensation premiums and stronger pipeline of further board appointments.

This article sets out what UK audit committees actually do in practice, the regulatory and code framework that shapes their role, the specific composition requirements that determine who can serve and who cannot, the substantive content of the audit committee’s annual work programme, what good audit committee work looks like compared to merely formal compliance, time commitment and compensation realities, the additional dimensions of the Audit Committee Chair role specifically, and the recruitment implications for boards seeking to strengthen their audit committee. It is written for Non-Executive Directors considering or already serving on audit committees, Chairs and CEOs evaluating their audit committee composition, and the senior finance leaders whose career trajectories increasingly include audit committee service as a natural progression from the executive CFO role.

It is written from the perspective of FD Capital’s team — a specialist senior recruitment firm placing Non-Executive Directors and senior finance leaders into UK growth businesses since 2018, including substantive engagement with audit committee chair and member appointments across PE-backed, listed, and substantive private company boards.

Call 020 3287 9501 or email recruitment@fdcapital.co.uk to discuss audit committee NED recruitment for your business.

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What the Audit Committee Actually Does

The audit committee is one of the principal committees of the board in UK companies subject to the FRC UK Corporate Governance Code, and exists as a formal requirement under the Disclosure Guidance and Transparency Rules (DTR 7.1) for issuers with securities admitted to trading on a UK regulated market. The committee’s purpose is to provide independent oversight of the integrity of the company’s financial reporting, the effectiveness of the external audit, and where applicable the effectiveness of the internal audit function, internal controls, and risk management arrangements. The committee operates with delegated authority from the board and reports back to the board on the matters within its remit, with the board retaining ultimate responsibility for the matters delegated.

The substantive work of the audit committee falls into five principal areas. First, oversight of the integrity of the company’s financial reporting — including the annual report and accounts, half-year reports, and any other financial information published by the company. The committee reviews the significant accounting judgements, challenges management’s assumptions, considers the going concern assessment, reviews the viability statement (for listed companies subject to that requirement), and ultimately advises the board on whether the annual report and accounts, taken as a whole, are fair, balanced, and understandable. Second, oversight of the external audit relationship — the auditor appointment process, the auditor’s independence, the scope of the audit, the quality of the audit work, the fee, and the reappointment recommendation. Third, oversight of the internal audit function where one exists — the function’s mandate, plan, reports, and effectiveness. Fourth, oversight of internal controls and risk management — the design and operation of the company’s internal control framework, the principal risks facing the company, and the risk management arrangements. Fifth, oversight of whistleblowing arrangements where this has been allocated to the audit committee rather than to a separate Whistleblowing Champion or other governance body.

The work is genuinely substantive. A typical audit committee meeting agenda runs across multiple complex items, each requiring meaningful preparation: the auditor’s report on year-end significant findings, management’s assessment of significant accounting judgements, the internal audit findings from the period, the risk register update, the going concern paper, specific transactions requiring committee approval, regulatory developments, and forward-look items. Material packs typically run to several hundred pages for substantive meetings, and the FRC’s Guidance on Audit Committees expects committee members to have read and understood the materials before the meeting begins.

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The UK Framework — Code, Guidance, and Rules

The framework governing UK audit committees rests on three principal sources: the FRC UK Corporate Governance Code, the FRC’s Guidance on Audit Committees, and the Disclosure Guidance and Transparency Rules. Companies Act 2006 provisions on directors’ duties (sections 171-177) apply throughout. Each source addresses different dimensions of the audit committee’s existence and operation.

The FRC UK Corporate Governance Code. The Code applies on a “comply or explain” basis to companies with a premium listing on the London Stock Exchange and is increasingly referenced by other UK companies as best practice. The Code’s provisions on audit committees include Provision 24 (audit committee composition — at least three independent NEDs in larger companies, at least two in smaller, with specific financial expertise requirements), Provision 25 (substantive responsibilities of the committee), and Provision 26 (the requirement that the audit committee prepare a separate section of the annual report describing its work). The Code has been revised periodically — most recently in 2024 — and each revision has tended to expand the substantive expectations placed on audit committees.

The FRC’s Guidance on Audit Committees. The FRC publishes detailed guidance setting out best practice expectations for audit committee work. The guidance is more granular than the Code itself and covers practical matters such as the audit committee’s relationship with the external auditor, the assessment of auditor independence, the policies for non-audit services, the annual review of audit effectiveness, the relationship with the internal audit function, and the audit committee’s reporting to the board and to shareholders. The guidance is non-binding but represents the FRC’s articulation of what good audit committee work looks like, and is referenced extensively by sophisticated audit committee chairs as the standard against which their work is assessed.

The Disclosure Guidance and Transparency Rules (DTR 7.1). DTR 7.1 applies to issuers of securities admitted to trading on a UK regulated market and includes specific requirements on audit committee composition and competence. The principal substantive requirement is that the audit committee, taken as a whole, must have competence relevant to the sector in which the issuer operates, and that at least one member must have “competence in accounting or auditing” — typically interpreted as the requirement for at least one member with qualified accountancy background or substantive financial expertise. The combination of the Code’s “recent and relevant financial experience” expectation for one member and DTR 7.1’s “competence in accounting or auditing” requirement materially shapes the audit committee recruitment market.

Companies Act 2006. The fiduciary duties of directors under sections 171-177 apply to audit committee members in respect of the company’s affairs as a whole, including audit committee work. The duty to exercise reasonable care, skill and diligence under section 174 has particular force in audit committee work, where the technical nature of the issues makes “due diligence” a substantive rather than merely formal requirement.

Beyond the listed company framework, audit committees are increasingly common in PE-backed businesses, substantial private companies, and family-owned businesses with external investors, where the governance discipline they bring is recognised as valuable even where no formal regulatory requirement applies. The Wates Corporate Governance Principles for Large Private Companies, which apply on an “apply and explain” basis to qualifying private companies, include expectations around financial reporting oversight that frequently translate into audit committee or audit committee-equivalent arrangements.

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Audit Committee Composition

Audit committee composition is more constrained than other board committee composition because of the specific requirements under both the FRC UK Corporate Governance Code and DTR 7.1. The combination of these requirements produces a relatively specific candidate profile.

Independence. All audit committee members must be independent NEDs as defined by the Code. Executive directors cannot serve on the audit committee, and NEDs whose independence is compromised by tenure, relationships, or other factors cannot serve regardless of their financial expertise. The chair of the board cannot ordinarily chair the audit committee — the role of audit committee chair is therefore distinct from the role of board chair, and the two are expected to be different individuals.

Number. The Code expects at least three independent NEDs on the audit committee for larger companies (including FTSE 350 companies) and at least two for smaller companies. Audit committees often run with three or four members in practice, occasionally more in larger or more complex businesses.

Financial expertise. The Code expects at least one member of the audit committee to have “recent and relevant financial experience”. DTR 7.1 expects at least one member to have “competence in accounting or auditing”. The committee as a whole must have “competence relevant to the sector in which the company operates”. In practice, well-functioning audit committees typically have at least one qualified accountant (ICAEW, ACCA, or CIMA) with substantive recent experience in financial reporting, and at least one further member with sector-relevant background. The “recent and relevant” element of the financial experience test is operationally important — an individual whose substantive financial leadership experience ended ten or fifteen years ago may not meet the “recent and relevant” test for current accounting standards, IFRS judgements, and contemporary disclosure expectations.

Sector competence. DTR 7.1’s requirement for sector competence ensures that the committee can engage with the specific accounting, regulatory, and operational issues facing companies in particular sectors. Banking audit committees typically include members with banking sector experience; insurance audit committees include insurance sector experience; and so on. Mixed sector experience across multiple committee members typically produces stronger committee work than uniform sector experience.

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The “Recent and Relevant Financial Experience” Requirement

The “recent and relevant financial experience” requirement under the Code, often referred to colloquially as the “financial expert” requirement, is more substantive than its short formulation suggests. The FRC’s Guidance on Audit Committees and successive FRC reviews of audit committee effectiveness have made clear that the financial expert is expected to engage substantively with technical accounting judgements, to challenge management and the external auditor on those judgements, to engage with going concern and viability assessments at a level of technical depth that requires substantive accounting background, and to be capable of identifying issues that might not be obvious to non-financial committee members.

What does this look like in practice? Strong financial experts on audit committees typically engage with: the specific accounting treatments adopted for material transactions (revenue recognition under IFRS 15, lease accounting under IFRS 16, financial instrument classification under IFRS 9, business combination accounting under IFRS 3); the going concern assessment including the underlying cash flow forecasts, sensitivity analysis, and severe but plausible scenarios; the viability statement and the principal risks supporting it; the impairment assessment of goodwill and other long-lived assets including the discount rates and growth assumptions used; the assessment of provisions including for litigation, restructuring, and onerous contracts; the disclosure judgements around critical accounting estimates, key sources of estimation uncertainty, and significant judgements; and the auditor’s significant findings and key audit matters.

The “recent” element matters because IFRS evolves. Standards published in the past decade — IFRS 15 (revenue), IFRS 16 (leases), IFRS 9 (financial instruments), and the various amendments to existing standards — are not areas where pre-IFRS or pre-modern-IFRS experience translates directly. Financial experts on audit committees benefit substantially from continuing professional development that keeps their technical knowledge current, and the FRC has been increasingly explicit about expecting this.

The candidate pool of individuals meeting the “recent and relevant” test is genuinely smaller than the broader pool of financially-experienced senior leaders. Former CFOs whose substantive technical engagement ended several years ago, senior consulting partners whose work has shifted away from technical accounting, and senior bankers whose accounting engagement has been at a higher level of abstraction may not all meet the test as the FRC currently interprets it. This contributes to the recruitment market tightness for audit committee chair appointments.

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The Five Principal Areas of Audit Committee Work

External Audit Oversight

The external audit relationship is one of the audit committee’s most consequential responsibilities. The committee is responsible for recommending the appointment, reappointment, or removal of the external auditor; assessing the auditor’s independence and objectivity; approving the audit plan and scope; assessing audit effectiveness; reviewing the auditor’s reports including the year-end significant findings; setting the policy on non-audit services and approving any non-audit work above the policy thresholds; and reviewing the audit fee. The relationship typically involves multiple direct interactions with the audit partner during the year, including private sessions without management present where the partner can raise concerns directly with the committee.

The non-audit services policy is operationally important. Following multiple cases where excessive non-audit work has been seen as compromising auditor independence, audit committees have generally tightened non-audit services policies materially. The committee is responsible for the policy framework, for approving specific non-audit engagements above policy thresholds, and for monitoring the cumulative non-audit fees relative to the audit fee. The current FRC Ethical Standard sets out detailed expectations on permissible non-audit services for public interest entities.

Auditor tendering, rotation, and reappointment have also intensified as areas of audit committee work. Mandatory audit firm rotation requirements for public interest entities (typically every twenty years with mid-period tendering at ten years) create periodic substantial workstreams for audit committees, including the management of the tender process, the assessment of competing audit firms, and the recommendation to the board.

Internal Audit Oversight

Where an internal audit function exists, the audit committee is responsible for oversight of its mandate, resourcing, plan, reports, and effectiveness. The committee approves the annual internal audit plan, reviews internal audit reports, monitors management’s response to internal audit findings, and assesses internal audit effectiveness on at least an annual basis. The internal audit function typically reports administratively to management (often the CFO) but functionally to the audit committee chair, with the committee having substantive say in the appointment and removal of the Chief Audit Executive.

Where no internal audit function exists — common in smaller companies and many PE-backed businesses — the audit committee considers periodically whether one should be established. The factors include the company’s size and complexity, the maturity of its first-line and second-line controls, the nature of the principal risks, and the cost-benefit assessment. The audit committee is expected to challenge management’s view on this and to take an independent position rather than simply accepting management’s preference.

Financial Reporting Integrity

The committee’s responsibility for financial reporting integrity is the work that consumes the most committee time, particularly around the year-end and half-year reporting cycles. The substantive work includes review and challenge of significant accounting judgements, going concern, viability statement, impairment assessments, provision assessments, fair, balanced and understandable assessments, critical accounting estimates and key sources of estimation uncertainty, key audit matters, and the wider annual report content including strategic report, risk disclosures, and remuneration report.

The “fair, balanced and understandable” assessment under the Code is a substantive responsibility. The committee advises the board that the annual report and accounts, taken as a whole, are fair, balanced, and understandable, and provide the information necessary for shareholders to assess the company’s position, performance, business model, and strategy. This requires the committee to read the annual report end to end, not just the financial statements, and to challenge whether the narrative reporting accurately and fairly represents the underlying performance.

Internal Controls and Risk Management

The committee’s responsibilities for internal controls and risk management have intensified materially with successive Code revisions. The 2024 Code revision in particular strengthened the expectations around the board’s declaration on the effectiveness of internal controls, supported by audit committee work. The committee oversees the design and operation of the company’s internal control framework — financial, operational, and compliance — receives periodic reports on control effectiveness, monitors the management of significant control failures, and supports the board in its declaration on control effectiveness.

Risk management oversight typically includes review of the company’s risk management framework, the risk register, the principal risks facing the company, the risk appetite, the management of specific risks where committee oversight is appropriate, and the reporting of risk matters to the board. In some companies the risk oversight responsibility sits with a separate Risk Committee, particularly in financial services where this is generally expected; in other companies the audit committee carries the risk responsibility itself.

Whistleblowing Oversight (Where Allocated)

Where the firm has not allocated whistleblowing oversight to a separate Whistleblowing Champion or other body, the audit committee frequently carries the responsibility. This includes review of the firm’s whistleblowing arrangements, the annual whistleblowing report to the governing body, oversight of significant whistleblowing cases, and assessment of whether the arrangements are operating effectively in practice rather than merely on paper. For FCA-regulated firms, the FCA’s SYSC 18 rules typically require allocation of the Whistleblowing Champion role to a NED specifically — often, but not always, the audit committee chair.

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The Audit Committee Chair Role Specifically

The Audit Committee Chair role has emerged as one of the most demanding NED appointments in UK corporate governance. The chair leads the committee’s work programme, owns the relationship with the external audit partner, owns the relationship with the internal audit function, owns the relationship with the CFO and finance team, leads the committee’s reporting to the board, and provides the substantive challenge that committee work depends on. The chair is also typically the audit committee member most engaged between formal committee meetings, with frequent contact with the CFO and the external audit team during the year.

The candidate profile for audit committee chair is typically narrower than for ordinary committee members. The chair almost always has substantive personal financial expertise — typically a former CFO of a comparable business, a former senior audit partner, or another senior finance leader with deep technical credibility. The chair must have the personal authority to challenge the CFO and the external auditor on technical matters, the time commitment to engage between meetings, and the credibility with shareholders and other stakeholders to discharge the public-facing aspects of the role including the audit committee report in the annual report and the engagement with shareholders on audit matters.

Compensation reflects the demands. Audit committee chair fees typically run materially above ordinary committee member fees, with premiums of fifty to one hundred percent over base NED fees common in larger companies. Time commitment is also materially higher than ordinary committee membership — fifty to seventy days per year is typical for substantive audit committee chair appointments, against twenty to thirty for ordinary NED roles.

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Time Commitment and Compensation

Time commitment for ordinary audit committee members. Beyond the standard NED time commitment, audit committee membership typically adds five to fifteen days per year. The committee meets formally four to six times per year for substantive companies, with each meeting typically requiring half a day to a full day on-site plus equivalent preparation time. Year-end and half-year meetings are typically more substantial than ordinary meetings. Additional time is consumed by ad hoc engagement with the auditor and CFO, attendance at the annual audit close meeting, and review of materials between meetings.

Time commitment for the Audit Committee Chair. The chair commitment is materially higher — fifty to seventy days per year is typical, with peaks around the year-end and half-year cycles. The chair is typically in regular contact with the CFO and audit partner between meetings, leads the committee’s report-writing for the annual report, and engages with shareholders and other external stakeholders on audit matters.

Compensation. Standard NED fees in UK growth businesses range from £30,000 to £75,000. Audit committee membership typically attracts an additional fee of £5,000 to £15,000 per year. Audit committee chair appointments typically attract a chair-specific fee of £15,000 to £35,000 above the base NED fee — often more in listed companies and substantial PE-backed businesses where the role is particularly demanding. In FTSE 250 and FTSE 100 audit committee chair roles, total compensation including the base NED fee and the chair fee can reach £100,000 to £200,000 per year, reflecting the substantial time commitment and the personal accountability the role carries.

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The Reform Context

The UK audit and corporate governance framework has been the subject of substantive reform proposals over an extended period, driven initially by the Kingman Review of the FRC, the Brydon Review of audit, and the CMA’s market study on the statutory audit market. The proposals have included replacing the FRC with a new regulator (provisionally named the Audit, Reporting and Governance Authority, or ARGA), strengthening the framework for managed shared audits, expanding the population of public interest entities subject to enhanced requirements, and introducing new requirements around internal controls reporting modelled on but distinct from the US Sarbanes-Oxley framework.

The pace of legislative implementation has been slower than originally anticipated. As at 2026, the FRC continues to operate as the existing regulator while reform proposals progress. The 2024 revision of the UK Corporate Governance Code introduced strengthened expectations around the board’s declaration on internal controls effectiveness, which audit committees support — this represents one strand of the reform agenda being advanced through Code revision rather than legislation. Other elements of the reform programme await primary legislation.

For audit committee NEDs and the boards that recruit them, the substantive implication is that audit committee work is likely to continue intensifying over the coming years rather than stabilising. Boards should expect continuing evolution of expectations, particularly around internal controls reporting, public interest entity scope, and audit market structure. Senior NED candidates increasingly want to understand the firm’s view of how it will respond to evolving expectations as part of accepting an audit committee appointment.

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Common Mistakes in Audit Committee Composition and Work

Mistake one: Allocating audit committee membership without substantive financial expertise on the committee. Audit committees that lack genuinely expert financial members rely on the executive team and external auditors for technical content the committee should be able to engage with independently. The remedy is more aggressive recruitment toward genuine financial experts rather than acceptance of generalist NEDs whose experience is plausibly close enough.

Mistake two: Treating audit committee work as a process compliance exercise rather than substantive challenge. Audit committees that work through the formal agenda without genuine challenge of the executive team add little governance value. Strong audit committees push back on accounting judgements, challenge auditor explanations of significant findings, and probe management on areas where the public position seems too comfortable.

Mistake three: Underinvesting in time between meetings. Audit committee work requires substantive engagement between formal meetings — particularly the chair’s relationship with the CFO and audit partner. Audit committees whose engagement is concentrated entirely in formal meetings miss the patterns and signals that emerge from continuous engagement.

Mistake four: Allowing audit committee composition to drift toward longer-tenured members. The Code’s expectations around independence include tenure considerations, and longer-tenured audit committee members may face independence challenges. Boards should plan succession proactively and should be willing to refresh audit committee composition rather than continuing with comfortable but increasingly compromised arrangements.

Mistake five: Confusing audit committee responsibility with risk committee responsibility. In financial services in particular, the FCA and PRA generally expect a separate Risk Committee in addition to the audit committee, with distinct mandates. Outside financial services, boards sometimes allocate risk responsibility to the audit committee in ways that overload the committee. Where risk responsibility is significant, separate risk committee arrangements often work better.

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How FD Capital Recruits Audit Committee NEDs and Chairs

FD Capital places Non-Executive Directors and senior finance leaders into UK growth businesses, including substantive engagement with audit committee chair and member appointments. Our network includes former CFOs of comparable businesses with substantive recent technical engagement, former audit partners with the technical depth and personal credibility the role requires, and senior finance leaders with sector specialism across the principal sectors. Adrian Lawrence FCA personally screens audit committee candidates given the technical demands of the role and the importance of getting these appointments right.

The recruitment process for audit committee chair appointments typically runs eight to twelve weeks from briefing to appointment. Initial briefing covers the company’s specific situation — the sector, the audit firm relationship, the existing committee composition, the principal accounting and reporting issues, and the expected committee work programme. Targeted long list drawing on FD Capital’s NED network. Structured candidate conversations covering technical expertise, time availability, and engagement quality. Reference checking including informal references from prior committee colleagues. Meeting with the Chair, CEO, CFO, and external audit partner where appropriate. Formal appointment.

Initial consultation is confidential and at no charge. Call 020 3287 9501 for an immediate audit committee NED requirement, or email recruitment@fdcapital.co.uk.

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Related Reading

• First-Time NED Appointments: A Founder’s Guide — when to make the first NED appointment and how to structure the role
• NEDs for International Expansion — internationally-experienced NED appointments for UK businesses expanding overseas
• CFO and FD Boardroom Influence — how senior finance leaders contribute at board level
• The CFO and Risk and Compliance — CFO engagement with risk and compliance frameworks adjacent to audit committee work
• The Modern CFO: Strategic Leadership Beyond the Numbers — the strategic dimensions of senior finance leadership
• Section 166 Skilled Person Reviews: A Complete UK Guide — supervisory framework that intersects with audit committee work in regulated firms

FD Capital Recruitment Services

• NED Recruitment — Non-Executive Director recruitment including audit committee chair and member appointments
• Chairman Recruitment — Chair appointments for UK boards
• Hire an FD or CFO — senior finance recruitment
• Private Equity CFO Recruitment — CFO recruitment for PE-backed businesses
• FCA-Regulated Firms Recruitment — specialist FCA-regulated firms practice
• Interim CFO and FD Recruitment — interim senior finance appointments

External References

• FRC UK Corporate Governance Code — the governance framework setting audit committee expectations
• FRC Guidance on Audit Committees — best practice expectations for audit committee work
• FCA Handbook — DTR 7 — Disclosure Guidance and Transparency Rules including audit committee requirements
• Companies Act 2006 — including sections 171-177 setting out directors’ general duties
• ICAEW Corporate Governance — professional resources on board governance and audit committee work
• Institute of Directors (IoD) — professional body with extensive resources on the role of Non-Executive Directors
• ICAEW — professional body for Chartered Accountants

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