The accountancy watchdog has today issued its final draft of guidance for auditors ahead of a significant piece of EU legislation coming into force this summer.
The final drafts of updates to the Financial Reporting Council's (FRC) UK Corporate Governance Code, Guidance on Audit Committees, and Auditing and Ethical Standards are designed to better secure the independence of auditors in light of incoming changes to audit rotation rules.
The updates aim to prevent conflicts that could put the independence of audit teams at risk by prohibiting certain types of engagements and placing a fee-cap on certain other activities.
In particular, the Ethical Standards prohibit the provision of tax services on a contingency basis by an auditor to certain large, listed companies.
What they say
"The updates to the Code, Guidance and Standards implement a significant change in audit regulation in the UK which will be overseen by the FRC as a competent authority with the support of the accountancy professional bodies," said Melanie Mclaren, executive director audit at the FRC. "The changes will support further innovation by the audit profession in the UK, and ensure that auditors act in a way that is genuinely independent and seen to be in the public interest.
"The UK has led the way on promoting audit transparency and competition on quality so that investors can have confidence in corporate reporting."
The FRC has also vowed to give accountants some breathing space by promising to avoid further updates to the Governance Code until at least 2019. The watchdog also hopes that, by issuing the updates now, accountants will have plenty of time to digest the changes before the new rules come into force.
Stephen Griggs, managing partner for audit at Deloitte, said: "There will be a teething period while companies get to grips with the FRC's Ethical Standard. A lot of this is new territory, particularly for smaller listed companies and unlisted banks and insurers. The new rules will undoubtedly reduce the services public interest entities seek from their auditors."
What to expect this summer
On 17 June, the EU Audit Directive will come into force.
Under the new EU rules, organisations which are Public Interest Entities (PIEs) will need to put their audit out to tender every 10 years and will need to change their auditor once every 20 years. The new rules will also boost the disclosure requirements in audit reports for PIEs.
Although the concept of PIEs already exists on English soil, the EU directive extends the definition to companies that would have previously been too small to be caught.