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17 December 2019

FRC moves to strengthen auditor independence and ban conflicts of interest

To support the delivery of high-quality audit in the UK, the FRC has issued a major revision to its Ethical Standard and revised Auditing Standards.

They incorporate changes to international ethical requirements, which now prohibit auditors from providing recruitment and remuneration services or playing any part in management decision making. Public interest entity auditors will now only be able to provide non-audit services which are closely linked to the audit itself or required by law or regulation. This will dramatically reduce the risk of a damaging conflict of interest, where the commercial interests of an auditor are perceived to be the most important factor in an audit relationship, rather than a focus on high quality audit.

The latest revisions are the result of a comprehensive post implementation review, supported by two public consultations and extensive outreach. The FRC will also monitor the outcome of the Brydon review and consider whether further changes to standards and their scope are necessary when the recommendations are implemented.

The revisions build on existing changes made to standards in 2016, which have seen audit firm fee income - from non-audit services provided to entities they audit - fall by 8 per cent. In three years, no audit firm has asked the FRC to waive the non-audit services fee cap, and audit committees for the most part, no longer consider their auditor to be the default provider for non-audit services. That is a positive change.

Full press release on FRC

Related article on Financial Times (subscription required) “Regulator tightens rules to strengthen audit independence”


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