Changes to the UK Audit Regulations – What firms need to know!

The ICAEW has made changes to the UK Audit Regulations which includes changes to the eligibility criteria. These changes impact audit firms and may result in a loss of their audit registration. In this podcast, Joanne Gregory outlines what has changed, how it affects audit firms and what audit firms must to do in order to retain their audit registration and by when.

For more information on this topic and more, please visit www.mercia-group.com for further details.

Transcript

[00:00:00] Hi everyone, my name is Joanne Gregory and I'm the Publications Senior Manager at Mercia, and I'd like to talk to you about the recent ISOW changes to the UK Audit Regulations, which came into effect on the 1st of October. So what has changed? Well, firstly, regarding CPD, the changes the ISOW outlined in their consultation last year have been made, which was largely expected, and simply reflect the new CPD requirements that came in last year. 

[00:00:28] In addition, changes to the eligibility criteria have also been made to allow audit qualifications of certain overseas individuals to now be recognised. But the main changes to the eligibility criteria, which were largely unexpected and will impact most firms, centre around the definitions of voting rights and majority. 

[00:00:49] So why is this important? Well, in effect, audit firms must now ensure that all matters affecting the overall direction of a firm's policy or that alter its constitution will be considered. must be capable of being approved by qualified persons, such as individuals who hold an appropriate audit qualification or audit registered firms. 

[00:01:09] Where a firm's constitution specifies a higher percentage than the simple majority now required for decision making, the firm must ensure that enough voting rights are held by qualified persons to meet the approval percentages stipulated in the firm's governance documents. Now the ICW has acknowledged that these changes are complex and may impact on a firm's eligibility to be audit registered. 

[00:01:33] As such, although the amendments became effective on the 1st of October, firms will have until the 1st of April next year to comply. So, what do firms need to do before the 1st of April? Well firstly, check who holds the firm's voting rights and in particular the number and percentage that are held by audit qualified persons. 

[00:01:54] This may take time to investigate, so we would recommend that you do this as soon as possible. Consider whether the changes to the rules on audit qualification over the years mean that some that were audit qualified persons are no longer audit qualified persons. And remember in order for the firm to retain its audit registration, audit qualified persons must hold a majority of the firm's voting rights. 

[00:02:17] Next, look at your firm's governance documents to identify if different percentages to a simple majority are needed for certain decisions. Where this is the case, for a firm to retain its audit registration, qualified persons must hold the supermajority of the firm's voting rights if the voting matter relates to a change to the firm's constitution or a direct civil policy of the firm. 

[00:02:40] Where this is not the case, firms may need to amend their constitution. Finally, firms must consider if each voting matter relates to a constitutional change or directs the overall policy of the firm. Now the ISOW highlights that this may be necessary for firms to take external legal advice and whether certain decisions directs its overall policy. 

[00:03:02] So thank you for listening to this podcast a tough subjective outline but please do reach out to us if you have any questions or would like some help understanding the changes and how it affects your firm. Thank you. Bye.