As required by company law and the Institute’s Audit Regulations (ICAI), audit firms must provide accurate and timely information to the Institute to be included on the Public Audit Register. If an audit firm does not adhere to these obligations, it will be considered a breach of Audit Regulations (ICAI) and may result in regulatory action. Below are a few points to remember.
1. Notification of changes to the Institute within ten business days
Audit Regulation 2.11 (ICAI) sets out certain changes in circumstances and related matters that a Registered Auditor must notify to the Institute as soon as practicable, but not later than ten business days, after the event. Audit firms should not wait until submission of the next firm annual return to advise of changes described in Audit Regulation 2.11(ICAI).
2. Importance of ensuring correct information on the firm annual return
When completing the firm annual return, audit firms are reminded to carefully review the standing data section to ensure that the Institute’s records reflect accurate information. This information is reflected on the public Audit Registers in the UK and Ireland, to comply with the requirements of company law in the respective jurisdictions. Any discrepancies should be notified in the standing data section of the firm annual return and will be passed to the Institute’s authorisations team for processing and approval.
3. Details of management board members
Audit Regulation 2.03 (ICAI) sets out the requirements regarding composition of the management board of a Registered Auditor. Audit Regulation 2.11h (ICAI) requires that any change in the name or business address of any member of the management board is notified promptly to the Institute.
Some audit firms choose to create a separately identifiable management board/body, others choose not to create an additional managerial level distinct from the principal/shareholder groups. Where an audit firm does not have a separately identified management board/body, the relevant approval requirements [Audit Regulation 2.03 (ICAI)] relating to the management board/body are applied to firm’s principals or shareholders as the body responsible for management and administration of the firm.
Information required to be included in the public Audit Register includes details of the management board of an audit firm. To date, the approach adopted by the Institute with regard to information contained in the public Audit Register has been to denote individuals as directors/owners of the audit firm as appropriate, and only to denote individuals as management board/body members where we have been informed that a separate management board/body exists. However, following a recent review by the Irish Auditing and Accounting Supervisory Authority (IAASA), the Institute is now required to obtain the names of the management board/body members for all audit firms for inclusion in the public Audit Register. If a firm does not have a separate management board/body, it should provide the names of the principals or shareholders to be denoted as management board/body members on the public Audit Register.
Audit firms can expect to be asked to provide names of the members of the firm’s management board on application for audit firm registration, on completing their firm annual return and, where applicable, when notifying changes in circumstances to the Institute.
4. Information regarding an audit firm’s membership of a network
Legislation in the UK and Ireland requires certain information to be included on the public Audit Registers relating to an audit firm’s membership of a network. To ensure that the public Audit Registers reflect accurate information in this regard, audit firms are asked to:
- review the definition of a network and carefully consider if they form one; and
- email the Institute at [email protected], at their earliest convenience, to notify the Institute of network membership, and to provide a website or postal address where a list of the names and addresses of all network firms and affiliates is publicly available.
Firms should not wait until the submission of the next firm annual return to advise of network membership.
What is a network?
Audit Regulation 2.12 (ICAI) defines a network as being “a larger structure aimed at cooperation to which a registered auditor belongs and which is:
- controlled by the registered auditor;
- clearly aimed at profit or cost-sharing;
- under common ownership, control or management; or
- affiliated or associated with the registered auditor through common quality control/quality management policies and procedures, a common business strategy, the use of a common brand-name or through the sharing of significant common professional resources.”
An ‘affiliate’ for the above purposes means any entity, regardless of its legal form, which is connected to a firm by means of common ownership, control or management.
Groups, both large and small, need to consider if they are networks. If a group holds itself out as acting under a common name or acts so closely together that any of them could influence the audits carried out by any other, then they should consider themselves a network.
While many larger firms regard themselves as members of a network, it is possible that many smaller groups might also find themselves within the definition of a network even though they have not considered themselves to be one. They may not even operate under a common name but could be caught within the definition by virtue of control or affiliation. Audit firms which are part of a group need to carefully consider if they form part of a network. If they conclude that they do not, they need to be able to justify this rationale on request by the Institute.
What are the consequences of being in a network?
Network firms need to be independent of audit clients of other network firms. This requires a robust system to identify independence issues throughout the network.
The Institute has a duty to keep the information on the public Audit Registers up to date. To do this, an audit firm must inform the Institute of changes to network membership and any change to the location of the list of names and addresses of all network members and their affiliates [as required by Audit Regulation 2.12 (ICAI)]. Audit firms will also be required to re-confirm the status annually as part of the firm annual return process and provide confirmations in that regard.
Further reminder in relation to public-facing information
Firms which no longer hold audit registration and/or investment business authorisation are reminded to remove all references to being a Registered Auditor and/or being authorised for investment business from all of their public-facing information including letterhead, website and signage.
Next steps – actions for audit firms
Audit firms are asked to:
- Review the information on the public Audit Register in relation to the audit firm when completing the firm annual return and inform the Institute of any inaccuracies.
- Provide details of management board members to the Institute on request. Where the audit firm does not have a separately identifiable management board, provide the names of the principals or shareholders to be denoted as management board/body members on the public Audit Register.
- Review the definition of a network set out in Audit Regulation 2.12 (ICAI) and carefully consider if the audit firm is a member of a network.
- Email the Institute at [email protected], at their earliest convenience, to notify the Institute of network membership, and to provide a website or postal address where a list of the names and addresses of all network firms and affiliates is publicly available.
- Where, in the future, any changes in the circumstances of the audit firm arise, advise the Institute within ten business days of the change occurring.
To notify the Institute of any relevant information or changes, or to ask any questions in relation to the matters raised in this letter please contact [email protected].