Auditors need to improve challenge of management ‘urgently’, says FRC

The FRC has issued a “major” revision to its Ethical Standard and revised Auditing Standards, in order to support the delivery of “high-quality” audit in the UK.

The regulator said the changes will help to “strengthen” auditor independence, prevent conflicts of interest and ensure the UK is seen as a destination to do business, because of “stronger investor protection resulting from high quality audit”.

The changes also affect international ethical requirements, which now prohibit auditors from providing recruitment and remuneration services or playing any part in management decision making.

Public interest entity auditors will also only be able to provide non-audit services which are closely linked to the audit itself or required by law or regulation.

The FRC said this will “dramatically” reduce the risk of a damaging conflict of interest, where the commercial interests of an auditor are perceived to be the “most important” factor in an audit relationship, rather than a focus on high quality audit.

The latest revisions are the result of a comprehensive post implementation review, supported by two public consultations and extensive outreach.

The FRC added that it will also monitor the outcome of the Brydon review and consider whether further changes to standards and their scope are necessary when the recommendations are implemented.

The FRC’s chief executive, Jon Thompson, said: “High quality audit supports the effective functioning of capital markets and gives investors confidence. Where audit fails, that confidence is undermined.”

“The steps we have taken in revising our standards include measures which our stakeholders have identified as important to strengthen their confidence in audit, by ensuring greater independence and a focus on delivering high quality and consistent work.”