This interesting article caught my eye in the Economia publication. Written by Julia Irvine the article states the government has confirmed that most companies traded on AIM will not be subject to mandatory auditor rotation and retendering when the Audit Directive and Regulation (ARD) comes into operation on 17 June.
The exceptions will be banks, building societies and insurers of a certain size which are deemed to be public interest entities (PIEs) under the directive.
In its response to the comments it received on the proposed technical legislative implementation of the ARD, the Department for Business Innovation and Skills makes it clear that AIM companies will not be included in the definition of a PIE.
This will come as a relief for the profession, which had expressed concern about the possibility that the government would go beyond the provisions of the ARD and include companies on the unregulated market.
Of the 25 responses to the original consultation on implementation, 17 – including those from all four recognised supervisory bodies (RSBs), the six largest accountancy firms, three mid-tier accountancy firms and four investor bodies – supported the view that the definition should not be expanded.
The auditors of AIM companies will still be bound by the Financial Reporting Council’s ethical code which requires them to rotate partners and staff on audit engagements on a regular basis.
They are also required to ensure that there are no threats to their integrity, objectivity and independence. If they can’t put adequate safeguards in place, then they are obliged to turn the engagement down, resign from it or not stand for reappointment.
The BIS response also confirms that the Financial Reporting Council is the most suitable body to be the competent authority for the regulation of auditors. But BIS has taken on board concerns raised by commentators about the FRC’s current constitution and governance arrangements.
It says it will make clear provision on the division of responsibilities between the FRC and the RSBs; it will also require the FRC to meet the independence requirements of the regulation before it becomes the competent authority, and to ensure that its disciplinary arrangements and the right of appeal comply with the European Convention on Human Rights.
Commenting on the BIS response, ICAEW chief executive Michael Izza said, “It is clear that government has listened in shaping its thinking on how to implement the legislation.
“By delegating tasks to the maximum extent possible to the RSBs – and by providing clarity on the division of responsibilities between ourselves and the FRC as the competent authority, this should enable a regulatory regime that gives confidence to investors without placing unnecessary regulatory burdens on business and the profession.”
He added that ICAEW was looking forward to working with the FRC to ensure that the proposals are implemented “in the spirit intended by government”.