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Independence guidance

Advice on the implementation of the FRC Ethical Standard for Auditors and other matters.

FRC auditor independence requirements

Audits in accordance with ISAs (UK) require the application of the FRC Ethical Standard for Auditors (‘FRC ES’) rather than part 4a of ICAEW’s own Code. The FRC ES succeeds the Auditing Practices Board’s Ethical Standards for Auditors (‘APB ES’) and applies for audits of periods where those periods commenced after 17 June 2016.

A further revision to the FRC Ethical Standard was issued in December 2019, to take effect for periods commencing after 15 March 2020. In essence this overlays additional prohibitions on the existing structure so the notes below continue to apply to the new Ethical Standard. Cross references in helpsheet are being amended to reflect the new standard.

The FRC published implementation guidance in November 2020 which clarifies a number of points, in particular relating to Other Entities of Public Interest.

ICAEW have also published a guide on the implications for pension schemes that are Other Entities of Public Interest under the 2019 Ethical Standard.

ICAEW’s Technical Advisory Service offers members a range of helpsheets, frequently asked questions and other guidance on ethical, UK GAAP, practice and technical matters. It is accessible in a number of ways, including by topic.

ICAEW has prepared a number of items of guidance on the application of the auditor independence requirements of the FRC ES, particularly for the audits of non-public interest entity audits (most non-financial sector private companies).

A number of additional guidance notes have been prepared based on the 2016 changes to the FRC ES and on new requirements for public interest entity (‘PIE’)audits in particular, as a result of the incorporation of EU Audit Regulation 537/2014 independence requirements for PIE audits into the FRC ES. These are available from the topic link above and include:

The FRC itself now issues guidance by way of a number of staff notes and additional comments by way of a rolling record of actions arising from its Technical Advisory Group. This includes changes that may be made to independence requirements in the event of a no-deal Brexit.

Note that as the FRC ES is issued by the FRC rather than ICAEW, the FRC is the ultimate authority on interpreting what that standard means. ICAEW’s guidance referred to above is prepared after lengthy discussions with the FRC and where possible points to any guidance the FRC has given itself. Nevertheless, it does not necessarily reflect the interpretation that the FRC itself might apply in the particular circumstances applying.