Governance in brief — New audit independence rules: the Revised Ethical Standard 2019

Published on: 04 Feb, 2020

The FRC published its Revised Ethical Standard in December 2019. We have updated our publication for clarifications and an erratum issued by the FRC, including the just-published definition of an “Other Entity of Public Interest” (OEPI). A previous version of this publication said the Standard was effective for periods commencing on or after 15 March 2020; this has now been clarified in the context of the application of transitional provisions.

Audit committees should note that the Standard takes effect on 15 March 2020 for PIEs. Transitional provisions mean that some of the changes for non-audit services will not have an immediate impact on services that have already been contracted for and commenced by that date. For OEPIs, the Standard is effective for periods commencing on or after 15 December 2020.

Changes include the move to a “whitelist” of services that can be provided by the external auditor, an extraterritorial scope extension to include worldwide subsidiaries, and the addition of services related to the internal audit function as services that require a full year “cooling in” period before the provider can take on the role of external auditor. There are also changes affecting reporting accountant services which companies should consider carefully and make suitable forward plans. 

Audit committees may need to review and update their non-audit services policy and will need to move quickly to implement the changes by the effective date.

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