How does the UK corporate governance code recommend assessing external auditors' effectiveness?

The recommendation from the UK corporate governance code to assess external auditors' effectiveness through sending questionnaires to key management is a proactive approach to garnering insights on the auditors’ performance. This method allows companies to obtain qualitative feedback from those who have directly interacted with the auditors throughout the audit process. Key management provides valuable perspectives on the auditors’ communication, professionalism, adherence to timelines, and the overall quality of the audit work performed.

Questionnaires can cover specific areas such as the auditors’ understanding of the business, responsiveness to issues raised, and the clarity of their findings and recommendations. This feedback can then be analyzed to identify strengths and weaknesses in the auditors’ performance, leading to more informed decision-making regarding future appointments or ongoing relationships with the audit firm.

In contrast, other options may not be as effective or relevant in assessing auditor performance. An external audit firm evaluation, while valuable, might not capture the nuanced experiences of management with the auditors. Reviewing financial performance directly does not inherently provide insights into the audit process or auditor effectiveness. Similarly, relying on online review platforms may introduce biases and lack the specific contextual understanding necessary to assess the effectiveness of auditors critically. Hence, the method of using questionnaires directed towards key management is considered the most direct and beneficial approach per the corporate governance