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Regulator to take control of audit registrations from September

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The accounting watchdog has announced that it will take control of audit registrations, with the power to strike off firms. Up to 30 auditors will be affected by the proposals.  

14th Apr 2022
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The Financial Reporting Council (FRC) has today launched a new consultation to reclaim responsibility for the approval and registration of audit firms conducting PIE audits from the Recognised Supervisory Bodies (RSB). 

The proposals take on board criticism from Sir John Kingman’s review, which concluded that the FRC has insufficient power to act where systemic quality issues with an audit firm are identified.

The FRC said the proposed changes would enable the regulator to hold audit firms to account for the delivery of high-quality audits. Currently, the FRC has to rely on the registration powers of RSBs, such as the ICAEW. 

Alongside removing registrations, the new powers would enable the FRC to impose conditions and suspensions.

The consultation is set to run until 26 May and then the regulator expects to roll out the new PIE registration from September 2022.

The FRC’s executive director of supervision, Sarah Rapson said: “Having direct responsibility for registering and monitoring PIE auditors will allow the FRC to act more quickly and effectively when systemic issues are identified in these audits. 

“This complements the FRC’s increasingly assertive supervisory approach and is a strong addition to our regulatory toolkit.”

Firms affected by the proposals

The consultation lists the firms that audit at least one PIE. No surprise that tier one of the affected firms includes the Big Four, BDO, Grant Thornton and Mazars. The second tier includes Crowe UK,  Haysmacintyre, MacIntyre Hudson, PKF Littlejohn and RSM UK Audit.

Tier three widens the FRC’s net a little bit with more firms pulled into the regulator’s scrutiny such as Beever and Struthers, Begbies, Bennett Brooks & Co, Bright Grahame Murray, BSG Valentine (UK), CBW Audit, Edwards Accountants (Midlands), Edwards Veeder (UK), Elderton Audit (UK), Gerald Edelman, Hazlewoods, Jeffreys Henry, Johnston Carmichael, Moore Kingston Smith, Price Bailey, Shipleys and UHY Hacker Young.   

Failure to comply, including a failure to submit information in a timely manner, will not result in a fine. However, the consultation report said that it “will be viewed very seriously”. 

While there are no financial penalties for a failure to comply with undertakings, conditions or suspension, firms still face the risk of being struck off. “Where a significant breach of the Regulations is identified, AFS may refer the breach to be considered under the FRC’s Audit Enforcement Procedure (AEP). The breach may also be referred to the complaints and discipline division of the relevant RSB. Depending on the circumstances, a failure to comply with the regulations may also lead to the audit firm or RI being removed from the PAR.”

Governance code

These new powers come a day after the regulator announced a new governance code that aims to strengthen the independent oversight of Big Four firms and those that audit FTSE 350 companies.

This move from the FRC attempts to change the “ramshackle house” criticisms aimed at the regulator by Sir John Kingman. “The house is just serviceable up to a point but it leaks and creaks, sometimes badly.”

By reclaiming these new powers, the FRC sets the stall ahead of its transformation into the more powerful Audit, Reporting and Governance Authority (ARGA). 

In January, the FRC’s new chairman  Sir Jan du Plessis said the audit regulator is in a “pretty poor state”. In a recent candidacy hearing in front of the BEIS, Du Plessis said the FRC was  “really not good enough” given its lack of leadership and outlined his intentions to steer the FRC through the transition.

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Replies (6)

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By tom123
14th Apr 2022 08:48

New chairman rubbishes predecessor shock..

Always a good idea to give out loads of bad news when you start, to make yourself look good in the future.

Interesting story though

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Replying to tom123:
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By flightdeck
14th Apr 2022 15:10

Yep.

Nothing will change through. What's the phrase - same circus, different clowns.

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By indomitable
14th Apr 2022 16:58

"Reorganizing is a Wonderful Method for Creating the Illusion of Progress while Actually Producing Confusion, Inefficiency, and Demoralization"

I think attributed to a Roman general or commentator

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By chrisowen
15th Apr 2022 02:59

What is a PIE please ?

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Replying to chrisowen:
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By mabryant
15th Apr 2022 20:28

Don't you love a good acronym? Hieratic language rules.
PIE means Public Interest Entity and it means a company that could embarrass the government if it went bust. Sorry, it really means a company that flogs shares or securities on a UK regulated market.

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Replying to chrisowen:
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By paul.benny
17th Apr 2022 17:32

Conflict of interest regulations are much stricter for auditors of PIEs - essentially the auditor can't do other work for PIE clients, the idea being that their opinion won't be influenced by any risk to other fees.

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