THE FRC is ramping up its activities as it strives to ensure that the new EU Audit Regulation and Directive regime is seamlessly implemented, and that the wider public’s trust in audit is strengthened.
Central to that drive is the publication of a consultation on revisions to Ethical and Auditing Standards, the UK Corporate Governance Code and related Guidance on Audit Committees.
The move marks the audit and accounting watchdog’s latest foray into underpinning public confidence in corporate governance and reporting by UK companies.
Ever since the financial crisis unfolded, the FRC has introduced a number of measures to enhance confidence in the quality of audits and increase the value of auditor reporting to the investor community. These include retendering, enhanced and extended auditor and audit committee reporting, and increased transparency of the results of the its audit quality inspections.
Stephen Haddrill, FRC chief executive, said: “The Audit Regulation and Directive is large and complex. We are working closely with professional bodies to make sure the new regulatory regime works as effectively as possible.
“We must ensure that it builds on the progress made in the UK in recent years in terms of the quality of audit, that competition in the audit market is strengthened in a way that supports innovation, and that the regulatory regime that emerges provides confidence to investors and to firms by being fair, understandable and independent.”
Reviews aplenty
Last year the FRC announced that it would enhance confidence in the quality of audit, and that its work would include recommendations from the then Competition Commission’s review of competition in the FTSE 350 audit market as well as the implementation of the new EU ARD; the development of best practice guidance for audit committees; and the assessment of whether ethical standards for audit remain fit for purpose.
Hywel Ball, EY’s UK head of audit, said the FRC’s consultation was the “clearest indication yet” that the UK, along with 27 other EU member states, “is nearing the point where the rules of engagement between audit committee, auditor and provider of other professional services will be re-written”.
“As expected, boardroom behaviour has been moving in advance of the regulatory changes and we have already seen a flood of companies issuing audit tenders and rotating their professional services providers this year. We expect at least 24 FTSE 100 audit tenders in 2015 alone, virtually all of which will result in a change of auditor.”
The proposed changes to the code and the revised Ethical Standards and Auditing Standards will apply to financial periods beginning on or after 17 June 2016, ARD’s implementation date.
Ball said the new regulations would affect the procurement strategies of a wide range of professional services, and not just audit.
“UK PLCs will need to make strategic decisions about which professional services they wish to receive: when, where and from whom. Many services will have to be provided by firms other than the incumbent or future auditors,” he said.
“Now that the regulators are on the home straight, time is running out for anyone who thinks they can start planning for these changes some other time. Today’s consultation from the FRC should be treated as a wake-up call for companies to put their procurement plans in place.”