REGULATORY

FRAMEWORK
 TYPES OF REGULATION
• Statute
• Case law
• Professional bodies
• International regulation
• Financial Reporting Council
 STATUTE
• Companies Act 2006

• Framework rather than detailed guidance.

• Covers:
– Eligibility
– Appointment
– Auditors duties
– Auditors rights
– Vacation of office
 ELIGIBIITY
Ensures the auditor is a fit and proper
person.
– Member of a Recognised Supervisory Body
(RSB)
– Individual authorisation by DTI
– Ineligible if lack of independence
– Penalties for acting whilst ineligible
 APPOINTMENT
Ensures shareholders satisfied with choice
of auditor:
– Appointed by shareholders at each AGM

– Directors appoint first auditors and to fill a

casual vacancy

– Remuneration usually fixed by directors.

 DUTIES
Report on all accounts
– Comply with CA
– True and fair view
– Offence to knowingly or recklessly give misleading
opinion

Report by exception
– Adequate accounting records kept
– Returns received from branches not visited
– Accounts agree with records and returns
 RIGHTS
Ensure the auditor is able to fulfil his duties.

• Access to books and records

• Information from officers and employees

– Offence to fail to respond
– Statement in directors report

• General meetings
 VACATION OF OFFICE
Aim to prevent directors removing auditor who disagrees with them.

– Vacate office by:

• Not seeking or obtaining re‑appointment.
• Resignation part way through the year.
• Removal part way through the year.

– Inform .
• Shareholders
• Appropriate audit authority

– Statement of circumstances
• Sent to shareholders
• Financial Reporting Council for major audits
• Registering body for audits that terminate before end of term of office
 PROFESSIONAL BODIES
No UK members RSB
ICAEW 117,475 
ICAS 16,666 
CAI 18,814 
ACCA 75,305 
CIMA 69,038 X
CIPFA 13,159 X
AIA 1,647 X
 DUTIES OF RSB
• Appropriate qualifications

• Fit and proper persons - rules on professional integrity,

independence & technical standards.

• Monitor and enforce compliance with the rules

• Investigate complaints against members

• Ensure members have insurance

• Register of auditors
 INTERNATIONAL FEDERATION
OF ACCOUNTANTS
• International Accounting Education Standards Board

• International Ethics Standards Board for Accountants

• International Auditing and Assurance Standards Board

(IAASB)

• Public Interest Oversight Board

• Forum of firms
 INTERNATIONAL GUIDANCE
• International Standards on Auditing (ISAs).

• International Standards on Assurance Engagements

(ISAEs).

• International Standards on Related Services (ISRSs).

• International Standards on Quality Control (ISQCs).

• Practice Statements.

• Other papers.
 FINANCIAL REPORTING
COUNCIL (to 2012)
Financial Reporting
Council Council

Accounting Auditing Financial Accountancy Professional Committee

Reporting & Actuarial On
standards practices Review Discipline
Oversight Corporate
board board panel Board Board Governance

Urgent Audit
Issues Inspection
Task Unit
force
FINANCIAL REPORTING
COUNCIL (from 2012)
 GUIDANCE ISSUED
• Audit Firm Governance Code

• Quality control standards

• The Audit Quality Framework

• Auditors Code

• Ethical Standards
 GUIDANCE ISSUED
• International Standards on Auditing (UK and Ireland)

• Practice Notes.

• Bulletins.

• Statements of Investment Circular Reporting Standards

• Statements of Standards for Reporting Accountants.

• Exposure drafts, briefing papers, research studies etc.

 ACCOUNTANCY & ACTUARIAL
DISCIPLINE BOARD
• Investigates the conduct of members and member firms.

• Initial complaints to relevant accountancy body. Public

interest case then referred to the AADB.

• AADB may investigate a matter without referral

• Complaints decided by a Disciplinary Tribunal

• Hearings normally open to the public.

 AADB SANCTIONS
• Exclusion from Institute for a specified period.

• Withdrawal of practising certificate

• Fines.

• Reprimands and severe reprimands

• Payment of costs.

• Waiver of fees due from client,

• Publicity
 J P Morgan & PwC
January 2012

Fined £1.4m Fined £33m

 PROFESSIONAL OVERSIGHT
BOARD
• Authorise accountancy bodies to act as supervisory
bodies and/or offer a recognised professional
qualification.

• Review the regulatory activities of the accountancy

bodies.

• Monitor the quality of the auditing function in relation to

listed companies and any other entity in whose financial
condition there is a major public interest.
 AUDIT INSPECTION UNIT
• Wide ranging review of firm procedures.
• Assessment of the key audit judgments and
compliance with Auditing Standards

Reports :
• Detailed report on each audit assignment to firm.
• Detailed reports on each firm to firm and
relevant audit registration committee
• Public reports on the Big Four & four mid tier
firms.
 AREAS OF CONCERN
• Maintaining quality
• Scepticism
• Financial services
• Impairment of intangibles
• Going concern
• Group audits
• Revenue recognition
• Materiality
• Use of experts
• External confirmations
• Testing controls
• Independence
• Reporting to audit
committees
• Quality control reviews
• Financial statement review
process
• Performance evaluation.
 US PUBLIC COMPANY
ACOUNTING OVERSIGHT
BOARD

UK firms must register if client

– Has US listing
– Is a subsidiary of a US listed company