The Financial Reporting Council plans to gain greater control over auditors with a register that will determine who can audit the financial statements of large listed companies or financial institutions — so-called public interest entities — and who cannot.
The country’s audit and accounting regulator requires audit firms and certain key individuals who currently audit these entities to apply for inclusion in a newly created index. If a company or person is deemed not to be “fit and proper”, they will not be admitted to the PIE register or will be removed from it, according to the regulator.
All audit firms and affected persons auditing PIEs must be registered with the FRC by December 5, the FRC said.
Under the regulations, the FRC can suspend entry to the register for non-compliance with its requirements, including carrying out at least one PIE audit within 24 months of the application for inclusion, or if it is in the public interest do it During a period of suspension, the length of which will be determined by the FRC, a company or individual could be required to resign from ongoing PIE audit work and appointments and face a ban from signing audit reports, said the regulator.
The moves aim to strengthen the FRC’s power to regulate the audit sector by separating the PIE auditor register from the activities of four professional bodies, including the Association of Chartered Accountants and Accountants of Ireland.
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The FRC previously had to rely on these bodies for registrations, he said, adding that by directly registering audit firms and individuals, it will have better oversight of audit issues. FRC regulations take precedence if they conflict with those of professional bodies, the regulator said.
The FRC first announced its auditor registration plans in April, noting at the time that it had “insufficient powers” to tackle systemic problems within audit firms. The announcement came as the audit and accountancy sector is undergoing an overhaul, which includes the creation of a new regulator called the Audit, Reporting and Governance Authority.
With the changes announced on August 18, the FRC said it gains more power to hold audit firms accountable for the quality of their work. “The new regulation will mean the FRC can act decisively when it identifies systemic problems at an audit firm, allowing us to impose conditions, suspensions and, in the most serious cases, deregistration,” said Sarah Rapson, executive director of supervision of the FRC. he said in a statement.
Feedback on the changes included comments from six of the UK’s largest audit firms, the FRC said. The British units of the big four firms PwC, KPMG and EY declined to comment. CFO Journal sponsor Deloitte, also part of the Dow Jones Group, said it supports the changes.
“We welcome today’s announcement from the FRC, which we believe will serve to improve public confidence in the audit profession,” Paul Stephenson, managing partner of Deloitte UK, said in a statement.
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This article was published by Dow Jones Newswires, a service of the Dow Jones Group