Annual compliance review
Audit regulation 3.20 requires a firm to monitor, at least once a year, how effectively it is complying with the audit regulations; and deal with any issues found on a prompt basis.
The audit compliance review (ACR) comprises two parts: a review of a firm’s obligations under the audit regulations (a whole-firm review) and cold reviews of completed audit work.ICAEW’s annual return asks firms to confirm:
- that they have completed an ACR in the year;
- the date when the review was done;
- whether it included a whole-firm review and cold file reviews; and
- whether a record of the ACR has been kept.
Following a monitoring visit, the QAD regularly reports firms to the ARC because, despite making positive confirmations on the annual return that they’ve completed an ACR and kept a record, no such reviews were in fact carried out.
In some cases, firms have confirmed on successive years’ annual returns that they’ve completed an ACR and kept a record; nevertheless, the monitoring visit reveals that reviews have not been carried out for some time.
In these circumstances, not only is the firm in breach of the requirement to carry out an ACR, it has also misled ICAEW by inaccurately completing the annual return.
Annual returns that are not completed correctly can have a serious impact on ICAEW’s regulatory function and are likely to lead to regulatory or disciplinary action against the firm.
When the committee decides the level of regulatory penalty to offer a firm, it will use ICAEW’s Guidance on Sentencing. The starting point for inadvertent errors and inaccurate statements in a firm’s annual return is £3,450. Since 2013 the ARC has offered 14 firms regulatory penalties, averaging £4,250 each, for errors made on their annual returns.
The ARC refers more serious cases of deliberate or false statements made on the annual return for disciplinary action.