The Audit Regulations define a ‘major audit’ as an audit conducted under UK law in respect of a public interest entity; or any other person in whose financial condition there is a major public interest.
Under audit regulation 3.15, if a firm is appointed to a major audit client, or becomes aware that an existing audit client becomes a major audit client, the firm must notify the Audit Registration Committee (ARC) in writing as soon as practicable, but no later than 21 business days after the event.
This applies to all firms except those where the Audit Quality Review team of the Financial Reporting Council (FRC) undertakes a full-scope inspection. This waiver currently applies to nine audit-registered firms.
The FRC publishes an annual list of major audits for the purposes of audit inspection and notification of major audit appointments to the ARC.
The 2014/15 list includes:
We have found a number of instances on recent monitoring visits where firms have failed to notify the ARC within 21 business days that they act for a major audit client. To date, the ARC has not taken regulatory action for such a breach. Nevertheless, this obligation has been in place for some time and the ARC expects that, by now, firms should be familiar with the requirements.
You should therefore ensure that:
You should keep this under review each year as changes to your clients and/or to FRC’s list may mean existing clients that aren’t currently ‘major audits’ subsequently fall within the definition.
In future, firms that fail to notify the ARC within 21 business days may be reported to the committee for it to consider whether regulatory action is necessary.
When you notify the ARC of the appointment, you should confirm the financial year-end of the first audit that the firm will undertake.
Please send your notification in writing to the ARC Secretary, Professional Conduct Department, ICAEW, 321 Avebury Boulevard, Milton Keynes, MK9 2FZ.