The Professional Oversight Board (“the Oversight Board”), part of the Financial Reporting Council, today publishes a description of those entities whose audits will  be deemed to be “major audits” for the purposes of audit inspections in the year from 1 April 2009 to 31 March 2010 (“2009/10”). Such audits come within the scope of the work of its independent Audit Inspection Unit (“the AIU”) in 2009/10.

The Board has determined that the market capitalisation threshold for audits of AIM or PLUS-quoted companies to be regarded as “major audits” should be reduced from £100 million to £50million. This reflects the significant reduction in the overall market capitalisation of these companies during the past year and the Board’s wish to keep the proportion of AIM or PLUS-quoted companies within scope broadly constant. The Board has also decided, in the light of its assessment of the relative level of public interest involved, that audits of Lloyd’s Syndicates should be removed from the scope of the AIU’s work altogether.

The Board also intends to bring non-UK incorporated entities audited by UK firms whose securities have been admitted to the official list within the scope of independent audit inspection subject to changes to the regulatory framework which are necessary to achieve this being made. It hopes to be in a position to make this further change during 2009/10.   

In the light of the current economic downturn, the Board has agreed that the AIU should have particular regard during its inspection work in 2009/10 to audit issues relating to going concern, fair value accounting estimates and disclosures and the impairment of assets including goodwill and other intangibles.        

Dame Barbara Mills, Chair of the Oversight Board, said:

“The Board continues to have regard to the level of public interest involved and the need for proportionate and cost-effective regulation in determining which entities should fall within the scope of the AIU’s work. The Board reviews this matter on an annual basis and takes account of any comments on the current scope received from interested parties.

The economic downturn gives rise to increased audit risks in a number of areas. The AIU will have particular regard during 2009/10 to certain audit areas where the challenges faced by auditors and the associated risks to audit quality were in our view increased significantly.”  
 

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
2. The Professional Oversight Board contributes to the achievement of the Financial Reporting Council’s own fundamental aim of promoting confidence in corporate reporting and governance. It has four main responsibilities:
   1. statutory obligation to oversee the regulation of auditors by the recognised accountancy bodies;
   2. the monitoring of the quality of the auditing function in relation to economically significant entities;
   3. independent oversight of the regulation of the accountancy profession by the professional accountancy bodies;
   4. independent oversight of the regulation of the actuarial profession by the professional actuarial bodies.
3. The Professional Oversight Board is independent of the accountancy and actuarial professions. Its members have wide experience of business and the professions, the public sector, accountancy, auditing and actuarial work.
4. 'The Audit Inspection Unit: Scope of Independent Inspection 2009/10' is available on the FRC website at http://www.frc.org.uk/pob/audit/scope.cfm. 
5. Press enquiries should be directed to Andrew Jones, AIU Director, on 020 7492 2360.