The Financial Reporting Council (FRC) has published ‘Objectives, outcomes and regulation’, outlining its plans to separate the UK’s Big Four accounting firms' audit operations by 2024. 

This 22 point report outlines the FRC’s principles for operational separation, splitting the audit and consulting roles of Deloitte, EY, KMPG and PwC. 

In April 2019, the Competition and Markets Authority called for quick action to tackle conflicts of interest and poor working practices within the troubled audit sector of the Big Four accounting firms.

The firms will be expected to:

  • Submit their separation plans to the FRC by 23 October 2020.
  • Agree a transition timetable with the FRC and separate operations by 30 June 2024 at the latest.

The FRC stopped short of imposing a complete break-up of the operations. It said its objectives should ensure that audit practices are focused on high-quality audits in the public interest and “do not rely on persistent cross-subsidy from the rest of the firm”. The changes have several main aims:

  • A company's audit practice governance:
    • Prioritises audit quality.
    • Protects auditors from influences from the rest of the firm that could divert their focus away from audit quality.
  • The total amount of profits distributed to the partners in the audit practice does not persistently exceed the contribution to profits of the audit practice.
  • The culture of the audit practice prioritises high-quality audit by encouraging ethical behaviour, openness, teamwork, challenge and professional scepticism/judgement.
  • Auditors act in the public interest and work for the benefit of shareholders of audited entities and wider society.

Links

COVID-19: NAO publishes guide for audit and risk committees
The National Audit Office (NAO) has published ‘Guide for Audit and Risk Committees on Financial Reporting and Management during COVID-19’.

UK regulator tightens rules for audit firms
The Financial Reporting Council (FRC) has issued a major revision of audit and ethical rules in its new Revised Ethical Standards 2019 with the aim of strengthening auditor independence and to prevent conflicts of interest.

External links

FRC's principles for operational separation: 'Objectives, outcomes and regulation'

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