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Nov. 3 — The U.K. Financial Reporting Council remains on pace to publish in April 2016 its final measures to implement the European Union's audit requirements, chief executive officer Stephen Haddrill told Bloomberg BNA Nov. 2.
Speaking on the sidelines of a stakeholders meeting in London to discuss the EU Audit Regulation and Directive (ARD), Haddrill noted that the U.K. government's Department of Business, Innovation & Skills issued a consultation just last week on transposing ARD into U.K. law.
“They have a lot of work to do,” he said, and “it's difficult for us to get too far ahead of them.”
How auditing oversight responsibilities will be split between FRC—which sets the nation's standards for accounting, auditing and actuarial work—and U.K. professional bodies remains undetermined as part of ARD implementation.
Divvying up of auditing oversight responsibilities should become clearer by the time the council publishes its ARD measures as expected next April, Haddrill said, with professional bodies expected to focus on auditing oversight of charities and pension funds.
Auditing oversight responsibilities “currently are quite convoluted,” he acknowledged in kicking off the meeting.
A key focus of ARD, which comes into force on June 17, 2016, is ensuring the independence of auditors, Haddrill said.
The key changes in ARD involve restrictions on auditors providing non-audit services to public interest entities (PIEs), FRC Director of Audit Policy Marek Grabowski told meeting participants.
FRC isn't proposing to apply these restrictions to other entities, he said.
• issuers of securities admitted to trading on a regulated market;
• credit institutions;
• insurance operations; and
• payment institutions.
Listed entities don't include those whose securities aren't freely transferrable or tradable.
FRC is proposing easing some requirements on non-audit services that listed entities with a market capitalization below 100 million pounds ($154.2 million) can receive unless the EU regulation prevents it.
ARD will boost auditors' reporting requirements, such as increasing the topics that must included in auditors' reports for both PIEs and other listed entities, Grabowski said.
For PIEs and all listed entities, auditors will have to provide an overall view of the audit report's scope and entities' responses to risks that emerge on key audit matters.
In addition, for all entities, auditors will be required to report on whether there are material inconsistencies between financial statements and the auditor's knowledge.
ARD's so-called blacklist barring services that auditors can supply to their PIE clients include tax services, as well as other services that “involve playing any part in the management or decision making of the entity,” Grabowski noted.
The council decided not to extend the blacklist to other services, he said, and doesn't plan to apply the restrictions to entities other than PIEs.
FRC also chose not to create a so-called white list of approved non-audit services for PIEs, even though—as with extending the blacklist—ARD permits member states to go beyond EU requirements (11 APPR 934, 10/9/15).
During a panel discussion, Hywel Ball of Ernst & Young said he “welcomed the fact that FRC isn't going further” than the EU's requirements.
He expressed concern, however, about PIE auditing requirements for banks and insurers, saying “this is one of the most difficult areas for us to navigate.”
Several panelists discussed the impact of EU requirements for FT350 companies to rotate auditing firms every 10 years.
“It'll require a change for audit firms in their business models,” Ball said, as they are forced into greater competition for auditing contracts.
Retendering auditing contracts is aimed at ensuring auditors' independence, not promoting competition for contracts, FRC Executive Director for Codes and Standards Melanie McLaren said, and “we don't want to drive good quality out of the audit market.”
Along with putting ARD measures into practice, revamping U.K. auditing requirements will involve integrating revised auditing standards that the International Auditing and Assurance Standards Board (IAASB) issues, Grabowski said.
This includes International Standard on Auditing 720, The Auditor's Responsibilities Relating to Other Information, which IAASB revised this year.
FRC currently is consulting on implementing ARD, and comments must be received by Dec. 11, 2015.
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The FRC consultation document on ARD is available at https://www.frc.org.uk/Our-Work/Publications/FRC-Board/Consultation-Enhancing-Confidence-in-Audit-File.pdf.
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