UK Implementation of EU Audit Reform – Policy Update

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26 Aug, 2015

The Department for Business, Innovation and Skills (BIS) have provided a policy update on UK implementation of the EU Audit Reforms. These reforms include amendments to the Statutory Audit Directive (applicable to all statutory audits) and a new EU Audit Regulation (applicable to audits of public interest entities – those with securities admitted to trading on an EEA Regulated Market, credit institutions (in the UK, banks and building societies) and insurance undertakings).

This follows a Discussion Paper from BIS and a Consultation Document from the Financial Reporting Council, both issued in December 2014. 

BIS explain that further consultations are expected in September 2015 as follows:

  • a BIS consultation on the split of regulatory responsibilities of the FRC and the Recognised Supervisory Bodies (e.g. the ICAEW), mandatory audit tendering and audit firm rotation. This consultation will deal with, amongst other things, implementation of the decision announced in July that the UK will be taking the member state option in the Regulation which means that public interest entities must tender their audit at least every ten years and change auditor at least every twenty years;
  • an FRC consultation on ethical standards setting out their initial thinking (this will include considering whether the EU restrictions will be applied more widely – both by type of audited entity and to non-EEA DTTL firms participating in a UK group audit, a decision on whether to permit certain tax services for public interest entities and the operation of the 70% cap), on auditing standards (including the application of “enhanced auditor reports” to entities listed outside the UK), and on the UK Corporate Governance and Guidance on Audit Committees (to deal with broader audit committee responsibilities). A later consultation will look at disciplinary arrangements; and
  •  PRA and FCA consultations on amending the audit committee requirements for entities with securities admitted to trading on an EEA regulated market and extending these requirements to unlisted banks, building societies and insurers. 

The Regulation comes into force on, and the Directive must be implemented in the UK by, 17 June 2016. The majority of the changes in the reform package will apply to the audit of financial statements for years commencing on or after that date. 

A copy of the policy update is available on the BIS website.  Our previous news story on the EU Audit Directive and Regulation is also available.

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