Governance of firms that audit public interest entities

The Market Participants Group (MPG) was established by the Financial Reporting Council (FRC) to advise it on its work on Choice in the UK Audit Market.

The Audit Firm Governance project is the result of Recommendation 14 of the October 2007 report of the MPG. It stated that, 'Every firm that audits public interest entities should comply with the provisions of a Combined Code-style best practice corporate governance guide or give a considered explanation.'

The ICAEW was invited by the FRC to support the implementation of Recommendation 14 by drawing up a code. The independent Audit Firm Governance Working Group was formed by the ICAEW to carry out this work.

To which firms will the code apply?

The Audit Firm Governance Code will only be applicable to firms that audit public interest entities.

We are consulting on what definition of ‘public interest entities’ to use. Primarily, public interest entities are listed companies and possibly other significant entities whose financial condition is considered to be a ‘major public interest’.

We are also consulting on whether there should be distinction between the different firms that audit public interest entities. The code will not be applicable to other audit firms.

Developing the code

The Working Group plans to carry out two formal consultations:

1. gathering evidence on key issues that will inform our work in drafting a proposed Audit Firm Governance Code; and
2. obtaining views on the draft of a proposed Code.

First consultation paper

The first paper will consider issues that should interest people who see audit as playing a vital role in a market economy and people who are concerned with the soundness of capital markets, including:

• partners and staff of firms that carry out audits;
• directors and employees of the firms’ public interest audit clients; and
• investors and other stakeholders in those public interest audit clients.

Read the first consultation paper

Further resources

• Press release
• Financial Reporting Council's Audit Choice Project