Audit Committees in Supervisory Boards of Polish Public Companies: Theory, Practice and Regulations

Abstract

The importance of audit committees increased after a wave of fraud which took place at the turn of the twentieth century. The audit committees were implemented into the corporate governance practice through guidelines, successively adopted in individual EU countries, codes of good practice, as well as legislative changes. The main premise of the legislative changes was the improvement of the process of supervision over the functioning of companies, including in particular public companies. The most important objective of establishing audit committees was to improve the efficiency of supervision of supervisory boards over financial and non-financial reporting of companies through better use of council members’ competences, better organization of its work and strengthening its position vis-à-vis the management board, shareholders and other stakeholders.

Initially, audit committees in Poland were appointed by companies on a voluntary basis, based on the recommendations of good practice codes, i.e., Dobre praktyki w spółkach publicznych 2005 [Good Practices in Public Companies 2005] and Dobre Praktyki Spółek Notowanych na GPW (2007) [Best Practice of WSE Listed Companies (2007)]. In 2009, the provisions of the EU Eighth Directive were implemented into Polish law, and thus the Act of May 7, 2009 on auditors and their self-government, entities authorized to audit financial statements and public supervision introduced the legal obligation to create audit committees also in public companies. The Act specified that the audit committee should consist of at least three board members, at least one of whom should meet the independence criteria and be qualified in the field of accounting or financial auditing. In 2017, the Polish legislator decided, in accordance with the solution provided for in the Directive 2014/56/EU of the European Parliament and of the Council, that the size of the board will not be the criterion for appointing an audit committee, but different size criteria for the company. Thus, supervisory boards do not have to appoint an audit committee if the company does not exceed two of the three criteria, i.e., revenues of PLN 34 million, assets worth PLN 17 million and employment of 50 employees.

This article concerns one of the key mechanisms of corporate governance, i.e., the activity of the audit committee. The purpose of this article is to present the evolution of Polish solutions regarding the activities of audit committees, resulting from good practices and statutory regulations, as well as the assessment of their implementation by companies.