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FRC principles for operational separation of audit practices

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13 Jul 2020

The FRC has announced its principles for operational separation of the audit practices of the Big Four firms.

The objectives of operational separation are to ensure that audit practices are focused on delivery of high-quality audits in the public interest and do not rely on cross subsidy from the rest of the firm.  The desired outcomes include:

  • Audit practice governance that prioritises audit quality and protects auditors from influences from the rest of the firm that could divert their focus away from audit quality;
  • The total amount of profits distributed to the partners in the audit practice does not persistently exceed the contribution to profits of the audit practice;
  • The culture of the audit practice prioritises high-quality audit by encouraging ethical behaviour, openness, teamwork, challenge and professional scepticism/judgement; and
  • Auditors act in the public interest and work for the benefit of shareholders of audited entities and wider society.

The FRC has asked the Big 4 firms to agree to operational separation of their audit practices on this basis and to provide a transition timetable to complete implementation by 30 June 2024.

Please click for the press release on the FRC website and the Deloitte press release

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