EU audit legislation: Government announces next steps
James Barbour, Director, Technical Policy, provides an update on the forthcoming consultations on the implementation of the EU audit legislation.
Department of Business, Innovation and Skills (BIS) consultation
The Department of Business, Innovation and Skills (BIS) intends to publish a formal consultation in the next few weeks focussing on a range of issues, including:
- The definition of a public interest entity (PIE)
- The Financial Reporting Council's (FRC) powers
- The responsibilities of professional bodies (including ICAS)
- Mandatory retendering
- Rotation of public interest entity (PIE) auditor appointments
The FRC will, in September, report on the decisions it has reached in the light of responses to its earlier preliminary consultation (issued December 2014), and consult further on the detail of implementation.
This will include in particular, types of entities in scope, prohibited non-audit services to audit clients, application of independence principles across firms' networks and, audit firm and key audit partner rotation.
The FRC will also amend existing auditing standards resulting from recent revisions to international standards on auditing (ISAs).
The consultation will also include proposed changes to the UK Corporate Governance Code and its associated Guidance on Audit Committees. At a subsequent date, the FRC expects to consult on other issues, including possible changes to its disciplinary arrangements.
Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) consultations
The EU reforms introduce new Audit Committee requirements applying to all PIEs as defined in the EU Audit legislation, i.e. to undertakings with securities admitted to trading on a regulated market, as well as to other banks, building societies and insurers.
The FCA will consult in early September on Audit Committee requirements applying to entities with securities admitted to trading on a regulated market, as an update to the Disclosure Rules and Transparency Rules (DTR) in the FCA handbook, which are supported by the FRC's Corporate Governance Code.
The PRA will be consulting in mid-September on Audit Committee requirements for banks, building societies and insurers regardless of whether or not they have issued transferrable securities. If a firm falls within both the scope of the FCA and PRA Audit Committees rules, the PRA intends it should comply with both sets of rules.