UK FRC consults on governance of audit firms
The Financial Reporting Council (FRC) has launched a consultation on proposals to update and strengthen the Audit Firm Governance Code. The Code applies to the Big Four and to other firms auditing FTSE 350 companies. Going forward it will also apply to firms that audit significant numbers of other types of public interest entities (PIEs).
In support of the FRC’s objectives to promote high-quality audit and audit market resilience, the proposals aim to strengthen the Audit Firm Governance Code in key areas of accountability and firm resilience.
The consultation is open for comment until 18 November 2021.
UK regulator’s inspection of audit quality shows room for improvement
The FRC inspection and supervision results for 2020/2021, covering the seven largest audit firms, show that nearly one third of the inspected audits need improvement.
The FRC CEO notes that while these results show some improvement on last year’s results, this is marginal and significant change still needs to happen to meaningfully improve audit quality.
Second Dutch consultation on audit in progress
In addition to the consultation on audit quality indicators (AQIs) (for reference see the previous issue of Audit Update), the Dutch Ministry of Finance issued a second consultation on audit this summer. Its proposals aim to introduce measures to permanently improve the quality of statutory audits. Some of the main proposals are:
- providing a legal basis for the mandatory reporting of AQIs by firms
- the Royal Netherlands Institute of Chartered Accountants (NBA) Board will receive the power to appoint an auditor where a company cannot find one. Where there is a dispute on fees, the NBA can determine the level
- all firms conducting statutory audits with a revenue exceeding 3 million euro and having more than 150 employees (i.e. also those without a PIE license), will need to set up a supervisory board
- a legal basis for the powers of the supervisory board will be provided and those powers will be stipulated (including profit distribution, M&A, investments and restructurings/lay-offs)
- expanding the possibility for 3rd country accountants to register with a foreign diploma
- supervision of non-PIE licensed firms will move from the NBA to the Dutch Authority for the Financial Markets (AFM)
- the AFM will get more powers to conclude that a system of quality control is deficient and hence the firm’s board responsible for any shortcomings (rectifying in law an early court case won by EY and PwC)
The deadline for responses is 16 September 2021.
Read more (in Dutch, the website also includes responses)