Do your client acceptance and cessation procedures reflect current market risks? QAD highlights considerations for firms and shares examples of good practices.
The audit market in the UK is going through a period of adjustment. Some firms are de-risking their current audit portfolio; some firms are taking on more potentially complex and high-risk audits. Drivers such as new registration requirements for auditors of public interest entities, implementation of operational separation, sanctions due to the war in Ukraine, and new International Standards on Quality Management Standards mean that many audit firms have or will need to evolve and enhance their procedures around audit tendering and re-tendering, audit acceptance, dismissal and resignation, as they assess and reassess risks within their audit portfolio.
The number of UK companies seeking new auditors has risen sharply over the past couple of years and the market remains turbulent. ICAEW’s Quality Assurance Department (QAD) is reminding auditors of their responsibilities in relation to resignations and of the need to make informed decisions when choosing whether to accept new audits into an existing portfolio.
To support firms to develop their audit practices and maintain high standards, ICAEW has increased QAD’s audit monitoring activities and also broadened the nature and scope of monitoring, to proactively identify and monitor audit risks as they occur within ICAEW registered audit firms.
During 2022, ICAEW introduced the new role of ‘audit risk officer’, to support, add to and complement work that QAD already carries out. Rebecca Carr, who took up this post, outlines her role in tracking risk. “QAD visits are usually retrospective. They're largely looking at audits that have already happened whereas I am looking prospectively, using media, risk profiling and other intelligence to follow risks as they occur between cycles," she explains. The audit risk officer will engage with firms earlier in the audit process, providing them with support to better manage any potential risks – and prevent problems from occurring.
“It’s not just about the monitoring,” emphasises Carr. Tailored information and advice will be offered to audit firms during calls and visits by the audit risk officer, who also offers to make insights available to all auditors. Examples include alerts about the latest risks in the audit market, good practices when taking on new audits and checking firms know how to correctly handle auditor resignations. As well as sharing more general points and news with firms, they will be able to read the latest risk alerts, market insights and good practice guidance from the audit risk officer in ICAEW’s Regulatory and Conduct News.
Over recent months, there have been a number of regulatory articles on aspects of audit acceptance and resignation that firms may find useful.
Risk alert for new audit tenders highlights some of the matters that all audit firms need to consider when making decisions in respect of existing audit clients (such as legal and contractual aspects of cessation) and prospective new clients (such as the depth of experience and resources necessary).
Auditor resignations: your responsibilities offers a reminder of how section 519 of the Companies Act 2006 may impact auditors who cease to act for a company. There are pointers on whether or not a firm must issue an s519 statement, what it must include and the prescribed timeframe.
Good practices when taking on new audits reminds firms of various risk, resource and quality management factors to consider when making decisions on accepting new audits into an existing portfolio. It also shares examples of good practices.
Further reading