Definition and Overview
The Smith Report, published in 2003 under the stewardship of Sir Robert Smith, was a detailed examination of the roles and responsibilities of audit committees within public companies. Released concurrently with the Higgs Report on non-executive directors, the Smith Report provided extensive guidelines to improve corporate governance and enhance the monitoring of financial reporting and audit procedures.
The key objectives of the Smith Report included:
- Strengthening the role of audit committees.
- Enhancing the clarity of responsibilities and the scope of audit committees.
- Boosting the protection of shareholders through accurate and reliable financial statements.
Both the Smith and Higgs Reports prompted crucial amendments to the UK’s Corporate Governance Code, emphasizing the accountability and effectiveness of audit committees and non-executive directors.
Examples
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Example 1: A large corporation implements the Smith Report’s recommendations by ensuring that its audit committee is composed solely of independent non-executive directors who meet regularly to review financial statements and audit findings.
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Example 2: A multinational publicly traded company enhances its internal audit procedures based on the Smith Report guidelines and conducts an external auditor review to ensure compliance with the revised Corporate Governance Code.
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Example 3: A financial institution revises its audit committee charter in accordance with the Smith Report to clearly define the responsibilities, such as overseeing the risk management processes and the internal control environment.
Frequently Asked Questions
What is the primary focus of the Smith Report?
The primary focus of the Smith Report is to provide comprehensive guidelines for the role, responsibilities, and objectives of audit committees in improving corporate governance and ensuring the reliability of financial reporting.
How does the Smith Report relate to the Higgs Report?
The Smith Report was published simultaneously with the Higgs Report, which focused on the role of non-executive directors. Together, these reports aimed to bolster corporate governance and were instrumental in revising the UK’s Corporate Governance Code.
What changes did the Smith Report bring to audit committees?
The Smith Report enhanced the accountability and effectiveness of audit committees by clearly defining their responsibilities, such as overseeing the financial reporting process, engaging with external auditors, and ensuring robust internal controls.
Who was Sir Robert Smith?
Sir Robert Smith chaired the committee that produced the Smith Report, guiding the examination of audit committee roles and driving the formulation of enhanced governance practices for listed companies.
What is the Corporate Governance Code?
The Corporate Governance Code, influenced by reports like the Smith and Higgs Reports, is a framework that provides principles and provisions for good corporate governance practices within listed companies in the UK.
Related Terms
- Audit Committees: Committees within a board of directors responsible for overseeing the financial reporting process, audit procedures, and internal controls.
- Higgs Report: A report on the role and effectiveness of non-executive directors, published in 2003 and contemporaneous with the Smith Report.
- Corporate Governance Code: A set of principles and guidelines promoting effective governance, accountability, and compliance in publicly traded companies.
Online References
- Financial Reporting Council (FRC): The Smith Report
- Association of Chartered Certified Accountants (ACCA) Analysis on the Smith Report
Suggested Books for Further Studies
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“Corporate Governance” by Christine A. Mallin Explore comprehensive insights on corporate governance practices and the development influenced by reports such as the Smith and Higgs Reports.
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“Financial Reporting and Corporate Governance” by Thomas A. Lee A critical examination of financial reporting standards and their intersection with corporate governance regulations.
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“Corporate Governance: Principles, Policies, and Practices” by Bob Tricker An in-depth guide on corporate governance principles, including the evolution of audit committee roles post the Smith Report.
Accounting Basics: “Smith Report” Fundamentals Quiz
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