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Exemption Application Process: Audit Tendering by Statutory Auditors Providing Prohibited Non-Audit Services to a Public Interest Entity ('PIE')
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
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1The Companies (Directors' Remuneration and Audit) (Amendment) Regulations 2025 (SI 2025/439) extends the scope of the FRC's power to permit the provision of otherwise prohibited non-audit services to PIEs. As a result, the FRC may, upon request by a statutory auditor or an audit firm ('the applicant'), grant an exemption allowing the applicant to provide otherwise prohibited non-audit services to a PIE where they propose to tender for the audit of that PIE.
2Strict statutory criteria must be satisfied before an exemption may be granted by the FRC, which include the existence of exceptional circumstances. An exemption may be relevant where an otherwise prohibited non-audit service has been provided in the period between the start of the first financial period to be audited (or the preceding period for the provision of services subject to the extended cooling period as set out in (e) of Appendix B of the FRC Ethical Standard), and the point at which a firm decides to submit a tender for the provision of statutory audit services to that PIE.
3This Process Note gives applicants guidance on the information to be provided with applications, sets out the process which the FRC will follow when considering applications, and describes the mechanism by which applicants may seek a review of a decision by the FRC not to grant an exemption.
4The FRC will keep this Process Note under review and will update it as appropriate.
Process
Information to be provided with applications
5An application for an exemption may be made at any time. Any such request should be directed to the FRC's Audit and Assurance Policy Team. The request must be provided in writing and must set out a detailed explanation for why it is being made, including (but not limited to) the following:
- Relevant background information:
- Full details of the prohibited non-audit services that have been provided by the applicant to the entity (and, where applicable, its parent undertaking and any controlled undertakings) by the applicant over the previous 2 years. Applicants should provide supporting evidence where this is available;
- The fees paid for those services in the last two consecutive financial years by the audited entity and, where applicable, its parent undertaking and its controlled undertakings;
- The fees paid in the last two consecutive financial years to the applicant by the audited entity for any other non-audit services that have been provided; and
- The proposed audit fee.
- The request for an exemption:
- Whether and the extent to which the application is urgent;
- The reason(s) why the applicant considers that the exemption is necessary;
- Whether the circumstances giving rise to the application were foreseeable and if so, when they were foreseeable and what steps were taken to avoid the need to make an application;
- Why the applicant believes that the circumstances for their request are 'exceptional';
- When the applicant proposes to stop the provision of prohibited non-audit services to the entity;
- The applicant's assessment of whether an objective, reasonable and informed third party would consider the nature and quantum of the services provided to be trivial and whether such services could compromise the auditor's independence; and
- What safeguards the audit firm will apply to mitigate any risk of its independence being compromised in respect of the proposed audit engagement if the exemption is granted.
FRC decision-making process
6Applications for exemptions should be sent by the applicant to the Audit and Assurance Policy Team as soon as reasonably practicable.
7The Audit and Assurance Policy Team will take into account all information provided with the request and may seek further information from the applicant where it considers it necessary.
8The Audit and Assurance Policy Team will consider all requests and will make a recommendation to the Executive Director, Regulatory Standards where it considers it has sufficient information.
9The Executive Director, Regulatory Standards will consider the application and recommendation, and make a decision. Where necessary, the Executive Director, Regulatory Standards may request further information from the applicant, the Audit and Assurance Team or any other person (s)he considers appropriate prior to making a decision.
10The FRC will provide a written decision to the applicant within 14 days of receipt of the request unless the applicant is informed otherwise.
Reviews
11Applicants will be entitled to an internal review of a decision not to grant an exemption. Applications must be made within 14 days of the decision. Applicants will not be able to make more than one request for a review.
12A Member of the FRC Board will be appointed by the FRC Chair to carry out the review.
13The reviewer will only grant a review of a decision not to grant an exemption if satisfied that the decision was manifestly ill-founded.
14Reviews will be concluded within 14 days of the request for a review. The request for a review will either be dismissed or lead to the matter being sent back to the decision maker for reconsideration.
15In the event that the matter is sent back to the decision maker for reconsideration, the decision maker will be provided with the reasons for the matter being referred for reconsideration. Any such reconsideration will take place within 14 days of being ordered.
Publication
16Decisions as to whether an exemption should be granted will be published in accordance with the FRC's publications policy.
Guidance Notes
'Exceptional basis'
The applicable legislation does not give further guidance on what might amount to an 'exceptional basis' for granting a waiver. In deciding whether or not there is an 'exceptional basis', the FRC will be guided by the Court of Appeal's articulation of 'exceptional' in R v Kelly (Edward) [2000] QB 198:
'We must construe 'exceptional' as an ordinary, familiar English adjective, and not as a term of art. It describes a circumstance which is such as to form an exception, which is out of the ordinary course, or unusual, or special, or uncommon. To be exceptional a circumstance need not be unique, or unprecedented, or very rare; but it cannot be one that is regularly, or routinely, or normally encountered.'
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