UK enacts EU audit legislation
James Barbour highlights the UK implementation of EU Audit legislation.
Legislation to implement the 2014 EU Audit Regulation and Directive has been approved by Parliament and takes effect on Friday 17 June 2016 (The Statutory Auditors and Third Country Auditors Regulations 2016 (‘SATCAR 2016’)).
- Establish the Financial Reporting Council (FRC) as the UK’s Competent Authority for audit
- Recognise the role of ICAS and the other professional accountancy bodies
- Place obligations on Public Interest Entities (PIEs) in connection with auditor appointments, including retendering and rotation requirements
The UK Government has designated the FRC as the UK Competent Authority for audit with responsibility for the regulation of statutory audit; including setting auditing (International Standards on Auditing (UK)) and ethical standards (FRC Ethical Standard); and monitoring and enforcement.
The FRC will delegate regulatory tasks to recognised supervisory bodies (RSBs). This is in line with a Ministerial Statement made in July 2015 and will be carried out in accordance with a Secretary of State direction. The FRC has reviewed and carried forward the recognition of each RSB and each RSB has entered into a delegation agreement with the FRC. The delegation agreements are based on the FRC and RSB having a common objective to promote audit quality. At present they are temporary delegation agreements in order to facilitate implementation by the effective date. The intention is that longer term arrangements will be made by September 2016. The RSBs will continue to approve and register statutory auditors. The FRC has published eligibility criteria; an instrument on audit registration; and the Audit Register Regulations.
The FRC has published the finalised versions of new UK auditing and ethical standards (final drafts were published in April).
The ISAs UK can be viewed on the FRC website:
The FRC has also issued updates to the UK Corporate Governance Code and Guidance on Audit Committees to reflect changes arising from the legislation on audit committees and auditor appointments. The FRC’s intention is to avoid further updates to the Code until at least 2019.
They have also published a new audit enforcement procedure. This provides a new administrative procedure where there has been a breach of regulatory requirements.
The FRC will monitor directly the quality of PIE audits and certain other retained classes of audit bringing some 50 firms into scope compared to 10 firms currently. The FRC published on 1 April its inspection scope for 2016/17.
The FRC will carry out enforcement and sanctioning in connection with PIE audits and any other retained classes. A new audit enforcement procedure has also been issued along with supporting documents. Consequential changes have been made to the Audit Regulatory Sanctions Procedures and related guidance.
The FRC may, on receipt of applications made to it by PIEs or statutory auditors, determine the date a PIE audit engagement began and authorise the extension of the duration of an engagement by up to two years or the relaxation of the financial cap on non-audit services. The FRC may also apply to court for an order to remove auditors. The FRC has published miscellaneous processes on how it will deal with these matters and publicise them.