Effective financial reporting and auditing
is essential for the efficient functioning of capital markets. It supports the
development of top quality businesses that attracts investors and also provides
the basis for sound commercial decision making along with trust and confidence. Auditing
is an essential safety measure to provide independent assurance that the
financial reporting of businesses properly reveals their overall condition, and
supports the maintenance of the integrity of the business environment.
In UK, the Audit Regulations have been
updated with effect from 17 June 2016 to take account of the changes in audit
regulation initiated by the European Union Audit Regulation and Directive of
2014. These were transposed into UK law last week by the Statutory Auditors and
Third Country Auditors Regulations (SATCAR). The changes apply to various
facets of the auditing activity in the shape of eligibility criteria,
accounting standards, ethical standards and governance criteria. They also
include a restructuring of audit oversight and the enforcement process in the
UK, and this restructure has required a number of changes in the audit
regulations. The legislation has taken the form of a short new legislation in
its own right which recognises the Financial Reporting Council (FRC) as the
ultimate competent authority. It also makes a number of amendments to the
Companies Act 2006 and Schedule 10 which sets out the role and obligations of
the Recognised Supervisory Bodies (RSBs) including ICAEW.
Most firms will observe a very little
change in process from the current regime, but in reality the FRC will be
exercising a lot more control over the regulatory process. In particular they
will be able to apply enforcement sanctions directly without any contact with
the RSBs. They can apply these not only to Public Interest Entities (PIE) and
AIM auditors but to any audit firm where they have elected to take over the
audit inspection and investigation of individual cases.
The powers of the FRC also include the
ability to move licences of individual firms between bodies or directly
administer them themselves. In such cases the rules of the new RSB can apply to
that firm. This requirement is set out in 1.02A.The ARD required some
additional sanctioning powers be given to the regulatory bodies, and these have
been brought into chapter 6 of the regulations. These include the ability to order
repayment of an audit fee in part or whole, and to declare an audit report
invalid
Additional
Thoughts
Auditing is improving but there is more to do as the
future of audit will require a change in thinking from auditors, investors and
companies alike.
The complete text of the DIRECTIVE 2014/56/EU OF THE
EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 April 2014 can be found here on
this link.
Reference: http://goo.gl/OeoMF7
