21 December 2012

FRC: Consultation proposals on the draft Auditor Regulatory Schemes

The FRC has developed the draft Auditor Regulatory Sanctions Procedure following amendments to the Companies Act 2006, which took effect on 2 July 2012. The amendments require the bodies which supervise statutory auditors to participate in arrangements not only for the independent monitoring of the auditors who undertake major audits but also for the body which undertakes the independent monitoring to determine sanctions against those members of the body who have failed to comply with the body’s rules relevant to statutory audit. The sanctions must then be imposed by the supervisory body.

In order to implement this change, the FRC has developed a draft Auditor Regulatory Sanctions Procedure (“the Procedure”), a copy of which is included in Annex B and key aspects of which are outlined in Section Two. Section Three provides a preliminary impact assessment and Section Four gives details of how to respond to this consultation.

The power to determine sanctions as set out in the Procedure relates only to poor quality audit work identified by the FRC’s Audit Quality Review (AQR) as part of its independent monitoring function which is considered to warrant regulatory action. Such action may only be taken against Registered Auditors (being member firms including sole practitioners registered as auditors by the relevant Recognised Supervisory Bodies (RSB)).

Where the AQR identify potential instances of misconduct (as defined by the FRC’s Disciplinary Schemes or the schemes operated by the RSBs), those matters are outside the scope of this Procedure and an appropriate referral will be made to the relevant disciplinary procedure. The Procedure should not, therefore, be confused with any disciplinary procedures or Schemes.

The RSBs remain responsible for imposing sanctions on audit firms in respect of poor quality audit work identified from their inspection activities and are not precluded from imposing other sanctions in addition to those determined under the FRC’s Procedure.

Press release

Consultation paper

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