Audit reform: practical guidance for UK implementation

The last few years have seen extensive regulatory change in the UK and EU statutory audit market. The changes mean that large companies in the UK must consider different sets of rules when making audit appointment decisions. The rules derive from: the Financial Reporting Council’s (“FRC”) UK Corporate Governance Code (April 2016); the Competition and Markets Authority 2014 Order; and the EU Statutory Audit Directive and Regulation which were implemented in the UK on 17 June 2016 by various new rules including the Statutory Auditors and Third Country Auditors Regulations 2016 and the FRC’s Revised Ethical Standard (June 2016). It’s a complicated jigsaw of requirements.

The new rules require all UK public interest entities to rotate their statutory auditor after a maximum period of twenty years, with a mandatory tender at the ten year midpoint (in line with the CMA Order).

In addition, the FRC’s Revised Ethical Standard (June 2016) sets out the new restrictions around providing non-audit services to UK public interest entity audit clients. The restrictions are applicable to audits of financial years beginning on or after 17 June 2016 which means that the auditor of a UK public interest entity will be prohibited from providing certain non-audit services and there will be a cap on the level of non-audit services fees that can be earned.

We have produced two documents that help to explain the impact of these changes;

We are not expecting the UK’s vote to leave the EU to change the application of the EU rules in the UK in the short to medium term. And in the longer term, we expect that the UK will continue to apply much of the EU regime in order to maintain market access.