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FRC to coordinate with professional bodies on future inspection work

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30 Jun 2015

In a speech at a recent Federation of European Accountants’ (FEE) audit conference, Financial Reporting Council (FRC) chief executive, Stephen Haddrill indicated that responsibility for regulating audit firms will not pass solely to the FRC as a result of the implementation of the EU Audit Directive and Audit Regulation into UK law.

In the speech, Stephen Haddrill stated that currently the FRC inspect the largest ten UK firms but as a result of the UK implementation of the EU Audit Directive and Audit Regulation in the UK, the FRC will be required to review all firms who undertake Public Interest Entity (PIE) audits. 

Many of the audit firms that will come under the FRC’s scope are currently inspected by recognised supervisory bodies (RSBs) such as the ICAEW. 

The Department for Business, Innovation and Skills (BIS) in December 2014 proposed that the FRC should be responsible for all inspections but delegate these back to RSBs for most non-public interest entities.

However, in his speech, Stephen Haddrill indicated that regulatory activities will continue to be carried out by the RSBs including those firms who undertake PIE audits. 

He commented that the FRC will adopt a “proportionate” approach to inspection and will “coordinate with the professional bodies who do a perfectly good job of inspecting such firms already”. 

Stephen Haddrill commented that as many of these firms only have “one or two PIE audits” the risk to the public interest of delegating their inspection to RSBs would be “minimal”.

He commented:

We must be alive to the risk of independent inspection driving firms out of the PIE market and reducing competition.  We must keep inspection costs in check and we must also consider whether our normal open reporting on firm performance is appropriate in relation to a small firm given that we will only inspect a small sample of its work.

 The full speech is available on the FRC website.

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