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The MOURA will provide a process for auditors who have obtained professional audit qualifications in either the UK or New Zealand to apply for recognition of their qualification and audit rights in the other nation.

The UK and New Zealand have signed a first of its kind agreement to recognise audit qualifications in both the UK and NZ so that auditors can more easily work between both countries.

The Memorandum of Understanding on Reciprocal Arrangements (MOURA) was signed by the UK’s Financial Reporting Council (FRC) and the NZ Financial Markets Authority (FMA) – the competent audit authorities for each country.

The UK and New Zealand signed a free trade agreement in February 2022 which included an annex on recognition of professional qualifications, encouraging regulators to establish routes to recognition and remove costly and burdensome requirements.

The FRC was awarded funding through the Department of Business and Trade’s Recognition Arrangements Grant Programme, making it possible to analyse the compatibility of UK and NZ professional qualifications. The funding is part of the government’s plans to encourage UK regulators and professional bodies in all sectors to agree recognition arrangements.

The MOURA will provide a process for auditors who have obtained professional audit qualifications in either the UK or New Zealand to apply for recognition of their qualification and audit rights in the other nation.

The agreement follows detailed analysis by both the FRC and the FMA to ensure the approved qualifications affords an assurance of professional competence equivalent to that afforded by a recognised professional qualification. Where applicable, applicants are required to complete aptitude tests or a period of adaptation.

The FRC said the MOURA will improve the quality of the UK and New Zealand audit markets by increasing the size of the talent pool over time and supports the interests of UK and New Zealand accounting firms and professional bodies. The agreement will help to deliver a more resilient audit market in the UK and New Zealand through greater competition and choice and by enabling skilled auditors to have their qualifications recognised and so move more easily between the UK and New Zealand.

The FRC is currently exploring similar arrangements with other countries that are important markets to the UK, to further widen the audit talent pool, subject to thorough assessments of the qualifications.

The FRC’s Acting CEO and Executive Director of Supervision, Sarah Rapson said: “The FRC welcomes this first of its kind agreement which will attract auditors to the UK, strengthen audit relations between the UK and NZ and supports the Government’s commitment to recognise professional qualifications internationally.

It ensures a more efficient pathway for senior auditors to work in both countries, boosting access to a wider pool of auditors, while upholding the high professional standards expected of auditors.”

Commenting on the news, Mike Suffield, director of Policy and Insights at ACCA, said: “ACCA welcomes the UK and New Zealand audit authorities agreeing mutual recognition of audit qualifications. It is good to see the work the two bodies have done to assess professional competence.

“Over time this memorandum of understanding (MoU) should increase the supply of high quality auditors for both economies. This is important at a time when audit talent globally is increasingly in short supply. This will in turn support the continued efforts from the respective regulators of the two countries to drive high quality audit in the public interest.”

He added: “This builds on the professional ties between the two countries, and helps embed the value of the strategic alliance between ACCA and Chartered Accountants ANZ which works to increase the flow of qualified accountants, including auditors, between the two countries.”

Article appreaed in Accountancy Today.

The low number of audits of listed companies undertaken by mid-tier firms has led to concerns over the lack of competition within the audit sector.

Mid-tier audit firms feel discouraged from taking on audits of listed companies from fear that they may be hit with large fines, Thomson Reuters has reported.

This comes after the FRC issued six fines to mid-sized audit firms and auditors working from 2022/23, which was on par with 2021/22, and three times higher than the two fines issued in 2020/21 and 2019/20.

The low number of audits of listed companies undertaken by mid-tier firms has led to concerns over the lack of competition within the audit sector. The Big Four currently accounts for 98% of FTSE 350 audit fees. 

According to the FRC, it is vital that the audit industry is competitive to “preserve the integrity of financial information in capital markets”.

Concerns over investigations by the FRC into mid-tier audit firms undertaking listed company work have made it more difficult and expensive for these firms to get the professional indemnity coverage necessary for auditing listed companies. 

Lengthy investigations by the FRC and the possibility of large fines from the FRC also means that insurers of audit firms may have to increase insurance premiums.

Kyle Gibbons, Europe managing director for confirmation at Thomson Reuters, said: “The FRC is in a challenging position of needing to ensure that audit standards stay high whilst balancing that with the need to make pitching for listed company audits worthwhile for mid-tier accountancy firms

“One thing mid-market firms can proactively do to reduce the risk of manual errors is to make better use of technology. And, when adopted in a thoughtful way, technology can give these firms greater capacity to take on larger audits, and the confidence to compete for them.”

The audit profession is gearing up for a new regulator, with the Audit, Reporting and Governance Authority (ARGA) set to come into effect in 2024 with greater powers than the FRC. The new body will address issues such as audit transparency, reliability, quality and sustainability

Writes Accountancy Today

Sky said that the announcement from Whitehall is expected nearly two years after the consultation and that the Department for Business and Trade’s Insolvency Service will introduce measures that will allow both businesses and people to be sanctioned for misbehaviour.

Insolvency firms face being formally regulated for the first time as ministers seek to establish a new watchdog within the Insolvency Service, Sky News has reported.

The news comes after the collapse of BHS and Carillion drew attention to the conduct of company directors and auditors.

Following the collapse, a consultation was launched to create a new independent regulator in the insolvency service.

Sky said that the announcement from Whitehall is expected nearly two years after the consultation and that the Department for Business and Trade’s Insolvency Service will introduce measures that will allow both businesses and people to be sanctioned for misbehaviour.

An industry executive told Sky that the aim of the reforms is “to close a regulatory gap and bring insolvency firms in line with the rules governing providers of audit and legal services”.

So far, providers of insolvency services have been regulated by a quartet of recognised professional bodies (RPB), which include the Insolvency Practitioners Association and the Institute of Chartered Accountants in England and Wales (ICAEW).

However, the Insolvency Service issued a formal reprimand to the ICAEW for the first time in June for failing to supervise a person who was subject to professional limitations.

Sky News also stated that the scope of the new rules governing firms was unclear on Saturday (9 September), but a source added that the current quartet of RPBs would be responsible for implementing them.

The government was also planning to create a public register for all individuals and firms offering insolvency services, and establish “a system of compensation and redress amendments to the current arrangements for insolvency practitioners to hold security (bonding) to cover losses in the event of fraud or dishonesty”. It is unclear if these reforms would be included in the package.

Article from Accountancy Today

The FRC has overseen a major uptick in audit enforcement activity recently, with the regulator issuing fines of £33.3m in 2022, a 77% increase from the previous year.  

The string of high-profile audit failures in recent years have been the catalyst for significant industry reform, but the profession is at risk of appearing ‘unattractive’ as a result, according to Nicola Scarr, audit partner at Haines Watts. 

In May 2022, the UK government announced it would revamp the country’s audit regime by implementing a new regulatory body, increasing the responsibility of large corporations, and diluting the monopoly of the industry’s Big Four firms.   

Significant corporate collapses such as Carillion in 2018 and Patisserie Valerie in 2021, were key catalysts for the overhaul. KPMG, the auditing firm responsible for the Carillion audit, faced a £1.3 billion lawsuit for purported audit negligence in the beginning of 2023. 

Scarr says: “It is important to understand and share when things go wrong, but the headlines can be a tough read. I always review the detailed reports to appreciate what has happened and take forward any learning, and I know we can all improve by doing that.  

“Restoring trust in the profession with audit reform is welcome; the challenge for us is our clients are typically locally-owned SMEs but the revision of standards applies to entities of all sizes.” 

This is echoed by Ian Graham, partner at Moore Kingston Smith, who says while it is not necessarily deterring people from entering the profession, it may prompt individuals to exit the industry.   

“The continued relentless negative publicity and pronouncements around audit are without any doubt putting people off wanting to continue their career and potentially put themselves in that position.” 

As part of the Carillion scandal, Pratik Paw, a former junior accountant at KPMG, managed to avoid a significant penalty and suspension for his involvement in the mishaps, receiving a “severe reprimand” instead. 

The developments, such as revised quality management standards, are welcomed by Haines Watts. The firm claims that it encourages enhancements to internal communication and self-reflection, extending even to its trainee staff. This fostering has increased open dialogues among team members at every tier, Scarr added. 

“We always strive for the best quality for our clients, but we are aware that we operate in an ever-evolving industry and processes, standards and markets in general are constantly changing.  

“We debrief at the end of an audit with both our team and clients to see where we can improve and add value across the entire audit process. This helps foster a culture of continuous improvement, and welcoming feedback, at all levels.” 

Writes Greg Noble in Accountancy Age