From 5 December 2022, all audit firms and responsible individuals that want to carry out audits of PIE entities will have to be on the FRC’s PIE Auditor Register.
The new register is part of the government’s wider reform of the UK’s corporate reporting and audit regime, which is designed to improve scrutiny and restore public trust. Other changes in the pipeline include expanding the definition of a PIE to cover a wider range of publicly significant companies.
Firms that already audit PIEs are joining the FRC’s PIE register during a transitional period, which has been underway since 5 September. This allows the 40 or so firms currently auditing PIEs to make a transitional application and become registered without any disruption to their existing work.
From 5 December, when the new scheme goes live, any firms not on the FRC’s register that want to take on PIE audits – or that might come within the scope of the requirements when the PIE definition expands – will have to register and get FRC approval.
The existing system, whereby all audit firms carrying out statutory audits must be registered with the Recognised Supervisory Bodies (which include ICAEW), will continue. But the new regime means those firms doing PIE audits will also need an additional FRC registration.
“The FRC has contacted firms that already audit PIEs, so they’ve been told what’s happening and know the process they’ve got to follow,” says Elaine Griffiths, Director of Regulatory Practice and Policy, ICAEW.
But the new system also has implications beyond this cohort of firms. Other firms might be affected in future and so need to keep up-to-date with developments and consider how it might affect their services to current and potential clients.
“Some firms may not necessarily be focusing on this new regime because they don't currently have PIEs as clients,” says Elaine. “But they could be drawn into it if they wish to audit a PIE in future, if one of their existing audit clients is on the cusp of being a PIE, or because the proposed new PIE definition brings a client within its scope.”
“Where firms are not aware of this new registration requirement, they could inadvertently fall foul of the new regulations,” she warns.
“So they need to be aware of the new register and application process, and that there will be a lead time for that,” she says. “The FRC's process requires you to be registered in advance of starting an audit, so you need to be on the FRC’s register before accepting an audit for a PIE client.”
ICAEW and the other Recognised Supervisory Bodies have been working closely with the FRC during the transition period, and this will continue.
“The FRC’s team has regularly attended meetings of our Audit Registration Committee to provide updates and obtain feedback,” says Elaine. “And if we've highlighted anything that might be unworkable, they have listened and responded.”
Minimising disruption to firms and PIE clients has been a key priority for the both the FRC and ICAEW. An example of this is that the FRC is aligning the date of the annual return it requires under the new regime with when ICAEW asks a firm for its annual return data.
“So, in theory, firms would just be collating data once a year and giving that to us and the FRC,” says Elaine.
“We've also updated our contractual arrangement with the FRC,” she adds. “And, as part of this ‘delegation agreement’, there is a registration protocol.”
“This sets out the obligations that we have to share information with the FRC and likewise what it shares with us,” she says.
For firms on the FRC’s register, ICAEW will be sharing information about annual returns, inspection visit reports from QAD, disciplinary findings, and any conditions and restrictions imposed by ICAEW’s Audit Registration Committee.
Similarly, the FRC will be sharing information with ICAEW, including, for example, any conditions it imposes or when a firm applies to come off the FRC’s register.
Firms that already audit one or more PIEs should already be well on their way to getting registered under the transitional process.
“But if any firms think they carry out PIE audits and haven’t yet spoken to the FRC, they should contact the FRC team as soon as possible,” says Elaine.
Firms with existing or prospective clients on the cusp of being a PIE, or who are likely to fall under the expanded definition, need to stay alert to current and future regulatory changes, and factor these into their client development and wider business plans.