If approval is granted by the IRB and also by the Institute of Chartered Accountants Scotland (ICAS) and Chartered Accountants Ireland (CAI), the notification requirement is expected to come into force from 1 June 2025. There will be a further six months transition period for a sole practitioner to appoint an alternate. With an expected effective date for the revised Audit Regulations of 1 June 2025, this would give sole practice auditors until 1 December 2025 to appoint an alternate.
Notification of the movement of certain audits
In summer 2024, a consultation was held on requiring registered audit firms to notify ICAEW when they are appointed as auditor to certain entities. The notification process is intended to provide increased regulator visibility of the movement of certain complex or higher risk audits.
Having considered the consultation feedback, the IRB decided to proceed with introducing the notification requirement, although a de minimis has been introduced for one of the reporting criteria to reduce the impact on smaller firms.
Notification will be required if a firm is appointed auditor to:
- a listed entity; or
- an entity with turnover greater than £750 million, or which is an Other Entity of Public Interest under the FRC Ethical Standard; or
- entities where the expected first year audit fee for the entity/group/collection of entities under the same beneficial owner or controlling party is more than twice the firm’s existing highest audit fee, subject to a de minimis of £25,000 for the first year audit fee; or
- an audit where the audit firm has three or fewer responsible individuals and the audited entity (or group or entities under common beneficial ownership or control) has combined turnover greater than £750 million.
Notification will not be required for audits where the firm already has to notify the Financial Reporting Council (FRC) of the appointment (this applies for audits of public interest entities and other audits retained by the FRC).
Registered audit firms will be required to notify ICAEW within 21 business days of being appointed as auditors for entities in scope, and in cases where a registered audit firm continues as auditor but the entity meets criteria that were not previously met.
Firms will be able to apply to the Audit Registration Committee (ARC) for a waiver from the requirement, which will be issued if it is satisfied that the firm has substantial experience and capability in performing the types of audits that are notifiable.
Further explanatory guidance will be issued to audit firms including details of how to make a notification and how to apply for a waiver.
Appointment of alternates
Currently the appointment of an alternate is compulsory for sole practitioner firms that hold clients’ money, but under the revised Audit Regulations this will be extended to sole practice auditors.
An alternate is an appointment that ensures that another practitioner can intervene in circumstances where a sole practitioner is unable to practice, for example as a result of serious illness. The role of the alternate is to ensure continuity of services and to effect a transition of clients to another auditor. There is no requirement for the alternate to undertake the business of the sole practitioner.
Feedback from the consultation highlighted the challenges that some sole practices may face in finding an alternate. For this reason, the definition of who can act as an alternate has been widened to include any member of ICAEW, ICAS, CAI or ACCA. The alternate does not have to be a responsible individual, nor do they have to hold a practising certificate.
There will be further guidance and support on finding and appointing an alternate in the coming months.
Changes not being taken forward at this time
The proposal to introduce regulatory penalties for responsible individuals (RIs) is not being taken forward. Concerns were raised by respondents to the consultation that having the ARC issue penalties could cause confusion and impact the attractiveness of the audit profession. The intention was that these penalties would take the form of remedial training orders to address audit quality issues, but on the basis that the ARC already has sufficient powers to issue training orders, we have concluded that the introduction of additional powers for the ARC is not necessary.
Governance arrangements
As the UK Audit Regulations are held jointly with ICAS and CAI, all three boards need to approve any amendments before they are published.
