A consultation is under way on the implementation of new European rules on audit.
The department for business, along with regulators at the Financial Reporting Council (FRC), have kicked-off the review as part of the introduction of rules, which require audits to be put out to tender every ten years and auditors changed every 20 years.
The European Audit Directive, which came into force at the end of last year, is now in the process of being introduced across EU states. In a statement in July business minister Baroness Neville-Rolfe revealed that the FRC would be in charge of its application in the UK.
“The government will require all public-interest entities, i.e. listed companies, banks, building societies and relevant insurers, to put their audit out to tender at least every ten years and change their auditor at least every 20 years,” she said.
“The government also intends that public-interest entities [with] retendered audit engagements should benefit from transitional recognition of that retender where possible.”
The FRC is now consulting on which companies should be subject to the new rules and other key issues.
In a statement, the FRC said: “The FRC will, in September, report on the decisions it has reached in the light of responses to its preliminary consultation, and consult further on the detail of implementation.
“This will include, in particular, types of entities in scope, prohibited non-audit services to audit clients, application of independence principles across firms’ networks, and audit firm and key audit partner rotation.
“At the same time, the FRC will amend existing auditing standards resulting from recent revisions to international auditing standards.
“The consultation will also include proposed changes to the UK Corporate Governance Code and its associated Guidance on Audit Committees. At a subsequent date, the FRC expects to consult on other issues, including possible changes to its disciplinary arrangements.”
The EU reform also enshrines the role of the audit committee in law, though its practices in the UK are already well established.
The directive says the audit committee should report on the outcome of an audit and detail the role of the committee in the process. It should also supervise financial reporting and propose changes to maintain its integrity; monitor internal quality control, risk management and internal audit in relation to financial reporting; oversee the performance of audits, taking into account the conclusions of the audit reviews carried out by authorities; review the independence of auditors; and take responsibility for the procedure used to select auditors.
The reforms are due to take effect on 17 June 2016.