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ICAEW responds to FRC and BIS consultations on implementation of the EU Audit Directive and Regulation

  • ICAEW (Institute of Chartered Accountants in England and Wales) (lt green) Image

17 Dec 2015

The Institute of Chartered Accountants in England and Wales (ICAEW) has responded to consultations published by the Financial Reporting Council (FRC) and the Department for Business Innovation & Skills (BIS). These consultations deal primarily with the implementation of the EU Audit Directive and Regulation in the UK.

The FRC’s Enhancing Confidence in Audit consultation was published in October 2015. The ICAEW’s response to this consultation questions the wisdom of the FRC's approach of verbatim reproduction of clauses from the EU Regulation with little or no supporting explanation and makes the following points:

  • The proposed approach of combining the new EU requirements with existing standards has resulted in over-complexity particularly in regards to the Regulation relating to Public Interest Entities (PIEs). Furthermore the inclusion of the Ethical Standard for Reporting Accountants (ESRA) within the Ethical Standards (ES) overcomplicates the standard and will be irrelevant for most readers.
  • The FRC’s approach to transposing the Directive is not consistent and there is no justification where phrases have been modified, for example the replacement of ‘immaterial’ with ‘clearly inconsequential' in paragraph 5.57 of the consultation. In some areas the changes proposed go beyond those outlined in the Directive itself, including the removal of words in paragraph 5.113 discussing tax advocacy. The report also questions whether it is necessary to introduce a complete prohibition of contingent fees on tax services for all audits.
  • Certain sections of the proposed amended standards are overly long and, at a minimum, more subheadings should be introduced to assist navigation.
  • The inclusion of additional rules for AIM companies is unnecessary, as there are no further requirements in the Directive for such companies over and above those for the audits of other non-PIEs.

In their response to the BIS consultation paper, the ICAEW highlight the current lack of a specific legislative requirement detailing the ability of the FRC, as the designated single competent authority under the Directive, to delegate particular matters to the Recognised Supervisory Bodies (RSBs). This is crucial to delineate the respective roles of both the FRC and the RSBs and therefore to allow the FRC to concentrate on their responsibility as the designated single competent authority within the UK. The report also notes particular concerns relating to the framework for the FRC’s process for reclaiming tasks from RSBs; the potential over-flexibility in the use of ‘public interest’ criteria; the procedures for recognition of statutory auditors from another Member State and a number of interpretational issues around the allocation of investigation and discipline roles.

The detailed response to the FRC consultation and to the BIS consultation can be obtained from the ICAEW website.

A Deloitte 'Governance in brief' publication on the FRC and BIS consultations is also available.

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