Update on the implementation of the EU Audit Directive and Regulation
The Department of Business Innovation and Skills has published an update on the implementation of the EU Audit Directive and Regulation:
“Following Baroness Neville-Rolfe’s Written Ministerial Statement of 20 July 2015, which named the Financial Reporting Council (FRC) as the intended UK Competent Authority for the regulation of auditors, the Department for Business, Innovation and Skills (BIS) is continuing to work with the FRC, Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and the Professional Bodies to implement the requirements of the Audit Directive and Regulation. The reforms take effect on 17 June 2016.
BIS intends to publish a formal consultation in the next few weeks, focussing on the definition of a public interest entity (PIE), FRC powers and Professional Bodies’ responsibilities, mandatory retendering and rotation of PIE auditor appointments and other issues.
The EU reforms introduce changes to auditing and ethical standards. The FRC will, in September, report on the decisions it has reached in the light of responses to its preliminary consultation, 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.
At the same time, the FRC will amend existing auditing standards resulting from recent revisions to international auditing standards. 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.
FCA and PRA consultations
The EU reforms introduce new Audit Committee requirements applying to all PIEs, 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.”