This note summarises the respective roles of the Government, the FRC and the accountancy profession in relation to the regulation of audit.
The Government is responsible for maintaining the legislative framework for audit regulation. This is set out in Part 42 of the Companies Act 2006, as amended. Schedule 10 sets out the detailed requirements for recognised supervisory bodies and Schedule 11 sets out the corresponding requirements for recognised qualifying bodies.
Most of the statutory requirements derive from the EU Statutory Audit Directive (2006/43/EC).
Under The Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc.) Order 2012,
which replaced a previous delegation order, the Government has delegated to the FRC most of the responsibilities and powers in Part 42 of the Companies Act 2006.
The principal responsibility is to recognise and oversee the regulation of auditors by professional accountancy bodies. In particular the FRC is responsible for the recognition, supervision and de-recognition of those accountancy bodies responsible for supervising the work of auditors and/or offering an audit qualification.
The delegated authority includes powers to make binding regulations in specific areas. To see the FRC Regulations that are in force, please click here
The Accountancy Profession
The professional accountancy bodies have the primary direct regulatory responsibility for the supervision of their members acting in their professional capacity. In relation to audit, as recognised qualifying bodies, they must have effective arrangements in place to ensure that their audit qualifications meet the statutory requirements; and, as recognised supervisory bodies, they must have in place amongst other things effective arrangements for registration, monitoring and disciplining of auditors.
It is, however, a statutory requirement that certain key regulatory functions must be carried out independently of the recognised bodies:
- the monitoring of the audits of major public interest entities is carried out by the FRC, through the Audit Quality Review team;
- and disciplining of statutory auditors in relation to cases of major public interest is carried out through the Conduct Committee.