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Note 1Note 1Note 2Note 3Note 4Note 5

Guidance Notes on Notification of Changes of Auditors to the Appropriate Audit Authority under Sections 522 to 525 of the Companies Act 2006.  

These notes relate to the flowcharts for notification by audit firms and by companies

Note 1

The requirements of Sections 519 to 521 of the Companies Act 2006 are outside the scope of this guidance material.  However, in essence Section 519 requires an auditor of a quoted company that ceases to hold office to deposit with the company “a statement of the circumstances connected with his ceasing to hold office”, and an auditor of an unquoted company that ceases to hold office to deposit either a statement of circumstances, or, if the auditor considers that there are no circumstances that need to be drawn to the attention of the shareholders or creditors, a statement to that effect.   This is relevant for the purposes of this guidance note because, what the auditor and the company must send to the audit authority depends in part on whether the auditor has deposited with the company a statement of circumstances, or a statement that there are no circumstances.

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Note 2 "Major Audit"

Section 525(3) provides that the Financial Reporting Council, as the body to which the Secretary of State has delegated functions under section 1252, may issue guidance on what is meant by a “major audit” for notification purposes.  Audit firms and companies must have regard to that guidance in determining whether a particular audit engagement is a “major audit”.   This note provides that statutory guidance on the interpretation of “major audit” for the purposes of these requirements.

The audits of the following UK companies should be considered as “major audits” for the purposes of determining the notification requirements.  These follow, where possible, the scope of inspections by the FRC's Audit Qualty Review team in relation to companies, though there are some important differences that are explained below. 

For the avoidance of doubt, companies incorporated in the Crown Dependencies (Guernsey, Isle of Man, Jersey)  are not UK incorporated companies.

1.    All UK incorporated companies with equity and /or debt securities admitted to the official list (within the meaning of part 6 of the Financial Services and Markets Act 2000) on the date on which the auditors cease to hold office.  Where the listed equity or listed debt has been issued by a separate entity within a group structure, the audit of the any group accounts including the entity should be considered as a major audit.  This includes PLUS-listed companies.

This matches the AQR scope.  

2.    All UK incorporated AIM or PLUS-quoted companies

The Audit Quality Review team scope is restricted to companies with a market capitalisation in excess of £100million.  We have concluded, however, that for the purpose of the notification requirement it is more appropriate to use a simpler requirement and we have therefore included all such companies. 

The requirement to notify FRC thus applies in relation to all companies who are listed on AIM or on the PLUS-quoted market on the date on which the auditors cease to hold office.

3.     Unquoted companies, which have either:

a) Group turnover in excess of £500million; or
b) Group long term debt in excess of £250million and turnover in
   excess of £100million.

This category is intended to include companies or groups of companies that
are privately owned, whether directly or through another UK or overseas investment vehicle, or trust. It is also intended to include those companies owned by private equity funds or other institutions. It is not intended to include subsidiaries of any other category in this list.

This matches the Audit Quality Review team scope.  The requirement to notify FRC applies in respect of companies who meet one of the above criteria, as shown in the last set of audited accounts.

4. Unquoted companies or groups which are subsidiaries of foreign parent companies where the turnover of the UK group or company is in excess of £1,000 million.  

This category is intended to cover major subsidiaries of overseas groups. If there are a number of separate subsidiaries trading in the UK and no UK group consolidated accounts are produced, this measure should be applied on an individual company basis.

This matches the Audit Quality Review team scope.  The requirement to notify FRC applies in respect of companies who meet above criterion, as shown in the last set of audited accounts.

5. Charitable companies with income exceeding £100million

This matches the Audit Quality Review team scope.  The requirement to notify FRC applies in respect of companies who meet the above criterion, as shown in the last set of audited accounts.

6. Subsidiary companies of the above.

A subsidiary company of any of the above companies may be treated as a “major audit”.   This avoids the need in the case of groups to notify different audit authorities in respect of different companies in the group.   

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Note 3 Notification to the FRC

The notification by the auditors or by the company should be sent to the FRC either in hard copy or by E-mail, as follows:

In hard copy to:  

Change of Auditor Notifications
Financial REporting Council
5th Floor, Aldwych House
71 - 91 Aldwych
London
WC2B 4HN

By E-mail to auditorchange@frc.org.uk

The auditors must notify the FRC at the same time as they deposit the section 519 statement at the company’s registered office.

The company must notify the FRC not later than 14 days after the date on which the auditor’s statement has been deposited at the company’s registered office.

There is no statutory format for notifying change of auditor to the FRC.  However, it should be clear, whether this is sent electronically or by post, who has signed the notification, and in what capacity, giving contact details in case of a query.   The notification should include the year end of the company’s last audited accounts,  the company number and the address of the registered office.

If the notification is by E-mail this should be in the form of an electronic copy of a letter.

The notification must be accompanied by a statement – see Note 5 (auditor) and Note  6 (company) below.

In the case of a group of companies, where the auditor of the parent company and of subsidiary companies are the same and cease their appointment at the same time, the auditors and the company can meet their obligations by a single statement accompanied by a list of the companies to which it applies, which should also, if appropriate, set out different reasons for the cessation in respect of different companies in the group.

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Note 4 Notification to the Recognised Supervisory Body

For audits other than major audits the appropriate audit authority is not the Financial Reporting Council but the auditor’s Recognised Supervisory Body (RSB).  The RSB is the body with which the audit firm is registered and which is responsible for the direct regulation of that audit firm.  This will be one of the ACCA, ICAEW, ICAS or ICAI.  

Guidance on notifying changes of auditors to RSBs can be found on the website of the ICAEW (www.icaew.com/auditnews)1.

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Note 5 Accompanying Statement by Auditor

Section 522(2) requires that the notice by the auditors to the FRC (or the RSB) that he has ceased to hold office in respect of a major audit is accompanied by

(i)  the statement they have deposited at the company’s registered office in accordance with section 519, and

(ii)  where the statement is to the effect that there are no circumstances in connection with ceasing to hold office, a statement of the reasons for ceasing to hold office.

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Note 6 Accompanying Statement by Company

Section 523(2)(b) requires that the notice by the company to the FRC that the auditor has ceased to hold office in respect of a major audit is accompanied by

(i)  a statement by the company of the reasons for the auditor ceasing to hold office

or

(ii)  if the statement by the auditors  deposited at the company’s registered office in accordance with section 519 contains a statement of circumstances in connection with the auditor’s ceasing to hold office that need to be brought to the attention of members or creditors,  a copy of that statement.

1 The other RSBs – ACCA, ICAI, ICAS may also give guidance on notifications to them and we shall add the relevant links as soon as we are aware of them
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