A Financial Reporting Council (FRC) consultation on proposed revisions to the Ethical Standard has been welcomed by ICAEW, as the regulator looks to bolster the principles surrounding the objectivity and independence of auditors.

This consultation announced on 8 August 2023 will place the spotlight on areas including partner and staff rotation, breach reporting and rules to address situations where an over-reliance on fees could threaten an audit firm’s independence.

The consultation fulfils a commitment made in the FRC’s 2022 position paper on audit market reform, in which the FRC committed to revising the Ethical Standard. In its position paper, the FRC also committed to consulting on withdrawing the category of Other Entities of Public Interest (OEPI) that was introduced in 2019, an aspect also covered in this latest consultation.

The proposed revisions to the Ethical Standards are, in the FRC’s words, intended to “further enhance and clarify the principles of integrity, objectivity and independence that auditors must abide by”. In addition to the withdrawal of the OEPI category, the consultation also covers the following areas:

• Breach reporting by audit firms to the FRC
• Personal Financial Independence
• Partner and staff rotation
• Enhance prohibitions where an audit firm’s independence could be threatened by an over-reliance on fees

The revisions also reflect developments to the International Ethics Standards Board for Accountants Code that have taken place since the FRC Ethical Standard was last revised in 2019. These include changes related to information technology services, enhanced tax service prohibitions, recruitment and remuneration services and corporate finance services.

In a statement, FRC’s Executive Director of Regulatory Standards Mark Babington said: “High standards of ethical behaviour go to the heart of high-quality audit and are designed to ensure auditors act with independence, objectivity and integrity at all times.

“While many of these proposed changes reflect developments at the international level, additional enhancements have also been introduced to ensure the ethical requirements are clearly understood and abided by so that there can be no uncertainty of the standards expected.”

ICAEW welcomes the opportunity to respond to the consultation, which closes on 31 October 2023, with the revised Ethical Standard due to come into force from 15 December 2024. 

More information: 

• Invitation to Comment and Impact Assessment
• Proposed FRC Ethical Standard
• key changes to the FRC Ethical Standard