How Are Audit Firms and Auditors Regulated

How are Audit Firms and Auditors Regulated

The requirements for statutory audits are set out by the Statutory Audit Directive (2006/43/EC) adopted by the European Union.

This has been transposed into UK Law by the Companies Act 2006. This Act provides powers to bodies known as Recognised Supervisory Bodies (RSBs) to register and supervise auditors. The RSBs are:

·  The Institute of Chartered Accountants of Scotland

·  Chartered Accountants Ireland

·  The Institute of Chartered Accountants in England and Wales

·  The Association of Chartered Certified Accountants

·  The Association of Authorised Public Accountants

The regulatory system of RSBs involves the following:

·  Registration processes

·  Monitoring

·  Investigation and discipline

The RSBs are also subject to independent oversight. The Financial Reporting Council (FRC) has statutory powers delegated to it by Government for the recognition, supervision and de-recognition of the RSBs. The FRC conducts regular inspection visits to the RSBs to ensure that their responsibilities are being discharged appropriately. The FRC also has the power to sanction RSBs.

In addition to the quality assurance and monitoring undertaken by the RSBs, the Audit Quality Review (AQR) team of the FRC has the responsibility for the monitoring of the audits of all listed and other major public entities. The scope of the AQR’s inspection activities is available on the AQR section of the FRC website.

The FRC operates an independent disciplinary scheme for accountants and accountancy in the UK. The Accountancy Scheme operates independently of the professional bodies. The FRC deals with cases of potential misconduct which raise or appear to raise important issues affecting the public interest in the UK. All other cases of potential misconduct continue to be dealt with by the professional bodies above. The FRC Conduct Committee has oversight over the operation of the disciplinary arrangements. A majority of its members are non-accountants. The Conduct Committee’s responsibilities in this regard include:

1.  Operating independent disciplinary Schemes for:

o  The investigation of cases which raise or appear to raise important issues affecting the public interest in the UK; and

o  Where appropriate, bringing disciplinary proceedings against those whose conduct appears to have fallen short of the standard reasonably to be expected of members or member firms of the relevant professional body.

2.  Keeping under review the working of the Schemes and the supporting Regulations to ensure that they are operating effectively; and

3.  Regular publicity for the FRC’s disciplinary activities and achievements as appropriate.

In Ireland, a system of public oversight also exists and is carried out by The Irish Auditing and Accounting Supervisory Authority (IAASA).