ICAEW response to FRC consultation on changes to the Audit Firm Governance Code

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02 Sep, 2015

The Institute of Chartered Accountants in England and Wales (ICAEW) has published its comment letter on the Financial Reporting Council’s (FRC’s) consultation on changes to the Audit Firm Governance Code (“the Code”).

The Code was developed by an independent working group constituted jointly by the FRC and the ICAEW, in response to concerns raised by market participants about the preservation of an adequate supply of high quality audits in a highly concentrated market following the collapse of Arthur Andersen.  It applies to firms which audit more than 20 listed companies, although adoption is not a regulatory requirement. 

The FRC consulted on changes to the Code in May 2015.

The ICAEW supports the FRC’s review of the Codes implementation and operation.  It believes that one of the focuses of the review should be to “foster the right environment for engagement between audit firms and their stakeholders”.  Although the ICAEW believes that changes to the Code may achieve this, it suggests that changes to the Code should be made against a “high hurdle” and highlights that the FRC’s work should be directed “towards understanding and addressing the root causes of why audit firms, investors and others are not engaging with each other to the degree that was hoped when the Code was launched”.

The ICAEW believes that the Code should encompass significant developments in the UK Corporate Governance Code.  By subjecting audit firms to “broadly the same” governance arrangements as the companies to which they audit, the ICAEW indicates that this will support public trust in audit firms.

Additionally the ICAEW indicates that, in light of recent audit reforms, the FRC should consider how audit firm governance can help audit committees differentiate between audit firms.  The ICAEW also comments that as well as promoting the Code internationally, the FRC should seek to focus on key aspects of the Code that can be implemented at an international level via regulation.

The full comment letter and responses raised to all questions in the invitation to comment is available on the ICAEW website.

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