FRC sets out its next steps in the context of UK’s audit and corporate governance reform
The Financial Reporting Council (FRC) published in July a Position Paper setting out the next steps to reform the UK’s audit and corporate governance framework.
The paper follows the Government Response to the consultation on strengthening the UK’s Corporate Governance, Corporate Reporting and Audit Systems, including the creation of the Audit, Reporting and Governance Authority (ARGA), to take over from the FRC.
The FRC builds on the areas of the Government Response that fall within its remit, to provide advanced clarity for stakeholders on how the work of reform will be delivered ahead of government legislation. That work includes revising existing codes, strengthening auditing and accounting standards, setting expectations to drive behavioural change ahead of statutory powers, and the development of guidance to address issues set out in the Government Response.
To hear more about the FRC’s proposed approach and what’s next across key policy areas, follow this podcast and webinar.
Audit quality continues to improve in the UK
The FRC published its annual inspection and supervision results of the largest audit firms (BDO, Deloitte, EY, Grant Thornton, KPMG, Mazars and PwC). Overall, audit quality continues to improve at the largest audit firms and on the largest audits. 75% of audits inspected were good or required limited improvement (compared to 71% in 2021 and 67% in 2020).
However, the report also highlights that:
- the improvement must speed up to meet the demands of the market
- some firms have been growing too fast, picking up higher risk audits being dropped by their peers, without adequate controls to ensure high quality audits
Dutch study on collaboration in the performance of statutory audits
The Dutch Authority for the Financial Markets (AFM) published a study on collaboration of audit firms. The study looked at 16 audit firms and concludes that:
- collaboration between audit firms can contribute to the quality of statutory audits, provided that proper quality safeguards are established
- intensity of collaboration in the performance of statutory audits varies
- extent of collaboration affects risks and requires safeguards
Read more here and download the study (in Dutch) here.