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The FRC said that by setting out clear expectations and guidelines, it aims to support the delivery of high-quality audits and reinforce public trust in the financial reporting process

The Financial Reporting Council (FRC) has unveiled a new minimum standard for audit, which aims to “enhance performance and ensure a consistent approach” across audit committees within the FTSE350.

The FRC said that by setting out clear expectations and guidelines, it aims to support the delivery of high-quality audits and reinforce public trust in the financial reporting process.

The publication of the Audit Committees and the External Audit: Minimum Standard comes after “careful consideration” of consultation responses received from stakeholders.

A consultation on the draft proposal for the Minimum Standard was launched by the FRC as a direct response to the government’s consultation on Restoring Trust in Audit and Corporate Governance.

This consultation had expressed the intention to grant statutory powers to ARGA (Audit, Reporting and Governance Authority) for mandating minimum standards for audit committees in their role on external audits. 

Throughout the consultation period, the FRC received feedback from a wide range of stakeholders, including prepares, investors, audit firms, accountancy bodies and members of the public. The responses were broadly supportive of the standard, it said. 

The standard is now available to audit committees on a voluntary basis, ahead of the anticipated legislation that will make compliance with the standard mandatory. The FRC added this voluntary adoption period will allow audit committees to familiarise themselves with the requirements and “proactively enhance their practices”.

Mark Babington, executive director of regulatory Standards at the FRC, said: “The publication of the Audit Committees and the External Audit: Minimum Standard represents a milestone in our collective efforts to restore trust in the audit profession and promote effective corporate governance.

Writes Heather Sandlin in Accountancy Today

Audit Partners, which together earn the vast majority of FTSE 350 audit fees, said they were concerned they could be accused of breaking competition law if they helped.

Smaller Accountancy Firms have called on Deloitte, EY, KPMG and PwC to share their audit expertise and technology, according to reports from The Financial Times. 

However, the FT said that partners which together earn 98% of FTSE 350 audit fees, said they were concerned they could be accused of breaking competition law if they helped. Delivering training to specific firms could lead to accusations of locking others out of the market, a partner at one of the firms told the paper. 

Small and mid-sized firms have reportedly called on bigger firms, as they have had the resources to invest in improving their audits and modernising their technology in response to stricter regulation due to auditing failures and corporate scandals.  

Martin Muirhead, chair of the Association of Practising Accountants, told The Financial Times: “Part of the problem is there isn’t enough knowledge sitting outside of the Big Four. The top firms have learnt a lot over the last five years since Carillion about quality and audit methodology, and educating us would assist us in improving audit quality. 

“Smaller firms do not have the resources to invest in the technology the Big Four use.”

The Big Four told the Financial Times that they were open to talks on helping smaller rivals win highly regulated audits of public interest entities (PIEs), which are large listed companies and privately owned financial groups and insurers. 

Writes Corina Duma in Accountancy Today

The FRC said it has ‘already taken numerous steps’ towards achieving the goals of the reform program.

The Financial Reporting Council (FRC) has published its latest three-year plan, outlining its priorities and objectives for the period 2023-2026.

The FRC revealed it anticipates an increase of £6.5m in its overall costs for 2023-24, reflecting a delay in the creation of the Audit, Reporting and Governance Authority (ARGA), and has re-prioritised its work to focus on changes that can be made using its existing powers and remit and where appropriate, planning for the creation of new ARGA powers and functions.

Despite these challenges, the FRC said it has “already taken numerous steps” towards achieving the goals of the reform program. For example, it has released a consultation on a draft Minimum Standard for Audit Committees, as well as publishing guidance on professional judgement for auditors.

The FRC’s Supervision division has also taken responsibility for Public Interest Entity (PIE) auditor registration, which allows the FRC to “act decisively” when it identifies systemic issues in an audit firm.

It also confirmed the enforcement division continues to deliver “proportionate sanctions in a timely manner”, with Constructive Engagement (CE) an increasingly useful approach to many of the cases it investigates.

Sir Jon Thompson, CEO of the FRC, said: “We are actively working towards the goals of the reform program, and though the legislation required to establish ARGA has been delayed, the FRC remained busy throughout 2022 by concentrating on the changes we can bring about through our current powers and remit.

“This plan shows we are committed to fulfilling our mission of serving the public interest and enhancing the quality of corporate governance and reporting.”

Writes Lewis Catchpole in Accountancy Today