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Staff Guidance Note: Impact of changes in the UK Listing Rules on the provision of reporting accountant services

The FRC does not accept any liability to any party for any loss, damage or costs howsoever arising, whether directly or indirectly, whether in contract, tort or otherwise from any action or decision taken (or not taken) as a result of any person relying on or otherwise using this document or arising from any omission from it.

The Financial Reporting Council Limited 2025

The Financial Reporting Council Limited is a company limited by guarantee. Registered in England number 2486368. Registered Office: 8th Floor, 125 London Wall, London EC2Y 5AS

Introduction

1The Financial Conduct Authority (FCA) issued the revised UK Listing Rules (UKLR) in July 2024. These made significant changes to the regulatory requirements for certain categories of transactions. The changes included removing the requirement for independent assurance on shareholder circulars, which were issued to support investor decision making in relation to these transactions; and removal of the requirement for a Sponsor to be appointed for these transactions. These changes will have a consequential impact on the work of reporting accountants.

2The purpose of this Staff Guidance Note is to set out the FRC's view on how these changes interact with the standards that it issues in relation to engagements performed by reporting accountants, namely the FRC's Ethical Standard and the Standards on Investment Reporting (SIRS).

Impact of the UKLR changes

3Before the changes in July, reporting accountants were required to provide an assurance opinion on certain types of financial information or statements included within investment circulars. These circulars were in turn triggered by a requirement for shareholder votes to take place in relation to certain classes of transactions, as defined by the old listing rules. These engagements were required by law and regulation to be performed through application of the Ethical Standard and the SIRs and were therefore public interest assurance engagements.

4Among other changes, the revised UKLR remove the requirement for shareholder votes in relation to significant transactions. There is therefore no requirement for companies to issue investment circulars in relation to these transactions, or for opinions by reporting accountants on financial information included within these circulars, or the issuance of comfort letters and other private reports in relation to statements included in the circulars. Instead, the company is required to make a 'significant transaction announcement', which may include financial information. There is no requirement for this information to be independently assured.

5Any engagement to provide services in relation to a 'significant transaction announcement' is therefore not required by law and regulation.

Ethical considerations

6There are three principles which underpin the FRC's approach to how the changes in the UKLR impact upon reporting accountant engagements interact with the Ethical Standard:¹

Principle 1: Engagements already being performed by reporting accountants should be treated by the Ethical Standard in accordance with the regulatory requirements in place when the engagement was commissioned.
Principle 2: Engagements permissible by the Ethical Standard when they were mandated by regulatory requirements will continue to be permissible when the engagement is performed on a voluntary basis.
Principle 3: The provision of assurance engagements, and non-audit and additional services, by reporting accountants on a voluntary basis in relation to significant transaction announcements will be subject to the non-audit service fee cap, since they are no longer required by law or regulation.

7The basis for the first principle is that it is reasonable that in-flight engagements should be considered within the regulatory context in which they were commenced. An assurance engagement that is commenced under conditions where the required assurance is mandated should be treated as such for the entire engagement, even if it is no longer required by law and regulation at its conclusion. For practical purposes, this means that an assurance engagement which was commenced before the changes to the listing rules should be regarded as a permitted non-audit service for public interest entities for the purposes of paragraph 5.40 of the Ethical Standard.

8The second principle acknowledges that these services do not represent intrinsic threats to auditor independence, since, subject to the principles articulated by the Ethical Standard and the application of any appropriate safeguarding measures, they are already permissible non-audit services. It would therefore not be reasonable to conclude that they are not permissible because they are no longer mandatory.

9Finally, the third principle recognizes that the Ethical Standard permits reporting accountants to perform engagements which are not required by law and regulation, while determining them to be services subject to the non-audit services cap:

Where not otherwise required by law or regulation, non-audit and additional services, as defined in this Ethical Standard provided as auditor of the entity, or as reporting accountant, in relation to information of the audited entity for which it is probable that an objective, reasonable and informed third party would conclude that the understanding of the entity obtained by the auditor is relevant to the service, and where the nature of the service would not compromise independence...²

Impact on the SIRs

10The Standards for Investment Reporting (SIRs) have been issued by the FRC to apply to reporting accountants when performing engagements involving investment circulars intended to be issued in connection with a securities transaction governed wholly or in part by the laws and regulations of the United Kingdom.³ Investment circulars are defined by the FRC's Glossary of Terms as 'documents issued by an entity pursuant to statutory or regulatory requirements relating to securities on which it is intended that a third party should make an investment decision'. The Glossary of Terms also defines engagements performed under the SIRs as public interest assurance engagements. These engagements are required to apply the Ethical Standard as the relevant ethical requirements.⁴

11Under the new listing rules, any engagement performed in relation to a disclosure to shareholders which is not an investment circular is not required by law and regulation. Since these disclosures do not meet the definition of an investment circular, it is also possible to interpret that the SIRs are out of scope for use as performance standards for any such engagement.

12In consequence, and pending any future project to revise the SIRs, the FRC clarifies that the SIRs may be utilized for voluntary assurance engagements in connection with significant transaction announcements and any other market notification required by the UKLR, where they are the most appropriate performance standards to apply in the circumstances of an individual engagement. In these instances, the reporting accountant should continue to apply the Ethical Standard as the relevant ethical requirements. This is because of the specific considerations for reporting accountants which are included within the Ethical Standard, and because the SIRs are predicated upon its application.

13The FRC also notes the current FCA consultation on changes to the Prospectus Rules.⁵ It will decide on next steps in relation to ensuring the SIRs remain up to date after the conclusion of this process.

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This SGN refers to the 2019 Revision of the FRC's Ethical Standard. However, there are no differences between the relevant sections of the 2019 revision discussed here, and the 2024 revision which comes into force on 15 December 2024. ↩
FRC, Revised Ethical Standard 2019, paragraph 5.40, 'Services subject to the non-audit services cap'. ↩
See SIR 1000: Investment Reporting Standards Applicable to all Engagements in Connection with an Investment Circular (Revised March 2020), paragraph 1. ↩
SIR 1000, paragraph 18 (requirement SIR 1000.4). ↩
FCA, Consultation Paper CP24/12: Consultation on the new Public Offers and Admissions to Trading Regulations regime (POATRS) (July 2024). ↩

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Name Staff Guidance Note: Impact of changes in the UK Listing Rules on the provision of reporting accountant services