The Institute has revised the Audit Regulations UK which set out the requirements for Institute firms and responsible individuals registered for audit in the UK, with effective date 1 October 2024. The most important revision for UK audit firms relates to audit firm eligibility.
Audit firm eligibility – majority and voting rights
The Audit Regulations, UK are updated to improve alignment with the UK Companies Act 2006 and the FRC Eligibility Criteria. The definitions of ‘majority’ and ‘voting rights’ for the purposes of determining the control of an audit firm have been clarified, and the guidance has been expanded. Firms may be affected where a ‘super-majority’ (more than 50%) is required for certain decisions of the firm to take effect – in those cases firms will need to ensure that the relevant ‘super-majority’ of voting rights is held by appropriately qualified persons where those decisions direct the overall policy of the firm or alter its constitution. The FRC issued a position paper in this regard in August 2024.
As some firms may need a period of time to effect necessary governance changes a transition period of 6 months has been incorporated so that these particular rules take effect from 1 April 2025. Firms are reminded of the requirement to inform the Institute promptly in relation to changes to the firm’s structure, ownership or constitution in accordance with Audit Regulation 2.11.
The Audit Regulations UK are issued jointly by Chartered Accountants Ireland, the Institute of Chartered Accountants in England and Wales (ICAEW) and the Institute of Chartered Accountants of Scotland (ICAS). ICAEW has published some useful FAQs in relation to the Audit Regulations UK and clarified eligibility criteria.
Firms with any questions about the application of these revised definitions to their firm should contact the Institute at authorisations@charteredaccountants.ie
Other changes to the Audit Regulations UK (all effective from 1 October 2024) include:
Recognition of overseas audit qualifications
Revisions have been made to reflect the provisions of the Professional Qualifications Act 2022 for the steps which professional bodies, including the Institute, have to take to recognise third country qualifications where there was agreement between the UK and the relevant third country. These steps include requiring an adaptation period and/or aptitude test. To date, Norway, Iceland and Liechtenstein are specified states under the Professional Qualifications Act.
The Professional Qualifications Act provisions are in addition to the role of the Financial Reporting Council (FRC) under section 1221 of the Companies Act 2006 to recognise certain third country qualifications. The countries where the qualification has been approved in that regard by the FRC are set out on the FRC website on this link.
Changes to the Audit Regulations UK in this regard include:
- ·new definition ‘adaptation period’,
- ·new definition ‘Professional Qualifications Act’,
- updated definition of ‘appropriate qualification’, and,
- updated guidance in chapter 4 regarding applications for responsible individual (RI) status.
Changes to the Institute’s affiliate requirements:
The Institute has made changes to its approach to affiliates such that there is a single affiliate status across all Institute regulations replacing multiple categories of affiliate. Therefore, distinct categories such as ‘audit affiliate’ are replaced by ‘affiliate’ and this is reflected in the revised Audit Regulations, UK. The requirements for Institute affiliates are set out in chapter 7 of the Institute’s Public Practice Regulations.
There is no longer any exemption from affiliate status for members of particular bodies – the overall requirement is that a principal at an Institute firm who is not a member of the Institute should be an affiliate of the Institute. From the perspective of the Audit Regulations UK this means that the current exemption from affiliate requirements for ICAEW, ICAS and ACCA members who are principals at an Institute registered audit firm is removed.
CPD obligations
Additional material has been added at regulations 3.17 and 3.17A to clarify the obligations of UK audit firms and responsible individuals (RIs) in relation to CPD requirements – now more closely aligned with the Audit Regulations, Ireland.
Guidance ISQM 1
At chapter 3 of the Audit Regulations UK, guidance in relation to quality management standards has been updated to reflect ISQM 1 instead of the previous standard, ISQC 1. Also, the somewhat out of date guidance (Part 2, chapter 2) in relation to ‘Audit compliance reviews’ (ACR) has been removed. It is considered that the relevant content is sufficiently contained within the ISQM 1 standard.
Amalgamation with CPA Ireland
A new paragraph has been added to guidance at regulations 2.03, 4.01 and 4.04 to draw attention to the amalgamation between the Institute and CPA Ireland on 1 September 2024 and the status of CPA qualifications in the UK (which is unchanged by the amalgamation).
Future proposed changes to the Audit Regulations UK.
In recent months, the attention of members was drawn to further proposed changes to the Audit Regulations UK as set out in a public consultation hosted by ICAEW. That consultation (closed on 6 September) proposes to make changes to the UK Audit Regulations which would require UK audit registered firms to notify their registering body when they are appointed as auditors to certain entities. The consultation is available to read here. Feedback received during the consultation period will be taken into consideration in the finalisation of next amendments to the Audit Regulations UK which are expected during 2025.
Any queries in relation to the current or proposed revisions to the Audit Regulations UK can be directed to professionalstandards@charteredaccountants.ie
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