The Brydon Report, published December 2019, published 64 recommendations regarding the quality and effectiveness of audits. These included redefining audit and its purposes, introducing “professional suspicion” and extending audit beyond financial statements. In effect, he proposed that auditing should be its own industry and completely separate from the accounting profession.
In response, on 18th August 2022, the Financial Reporting Council (FRC), the UK’s independent regulator of corporate governance, financial reporting and audit, published the Public Interest Entity (PIE) Auditor Registration Regulations, a PIE being a business that is of significant public focus because of the nature of its business, its size or the number of employees – the most common example of which is any company with equity or debt listed on the main market of the London Stock Exchange. As a consequence, from 5 December 2022 all audit firms and Responsible Individuals who undertake statutory audit work for PIEs need to be registered by the FRC.
One year on from the publication of the regulations, what have been the consequences of the changes?
Martin Chatten, Group Board Director and Head of RPG Chartered Accountant’s Audit team explains:
“The biggest change we have seen is the actual number of audit firms registered to carry out PIE audits. Many mid tier accountancy and audit firms have decided not to register to carry out PIE audits, effectively withdrawing from this sector of the market.
“As at 15 August 2023 there were only 43 firms identified on the FRC PIE Auditor Register whereas previously, any registered auditor would theoretically have been available to carry out this work. Perhaps perversely, the new registration requirements have, in effect, stifled competition.
“Some smaller firms of auditors will have been put off registering as the same technical requirements and enforcement regime applies to the audit of a multinational FTSE 100 company as to those companies only just reaching the capital requirements for a full listing, or for example a friendly society.
“We took the decision early in 2022 that it was essential for RPG to be registered so we went through the transition process to ensure that the firm was approved with two Responsible Individuals, my colleague Jon Hayward and myself, when the register was published in December 2022.
“We have seen many companies in turmoil because their existing auditor elected not to register with the FRC and is no longer able to help them. In fact we have noted that some listed companies’ shares have had to be suspended as they were unable to publish their audited financial statements within the reporting deadline due to the lack of an auditor.
“We have received many enquiries directed to RPG from companies across the country who are seeking out new auditors as their previous auditors have withdrawn from the PIE market.
“We are still open for new business and have recruited three new auditors to our team in the past few months to help us accommodate additional work. Unfortunately there has been a general shortage of auditors (and professionals in other areas of work too) since covid and recruitment is difficult, however, we are being exceptionally careful to recruit only the best people.
“Above all, we need to ensure that we can manage capacity for all of our clients. Where this has looked challenging, we have declined to quote for new work as we need to maintain the integrity and excellence of our audit service.
“In addition, we have continued to invest in training and support for our people as their well-being and development is at the heart of our operation. We are also constantly reviewing our processes and use of technology to help us maximise our efficiencies.
“Looking to the future, I would anticipate that this situation will have settled down by the end of 2023 but there are Government proposals to extend the definition of a PIE. If accepted, the revised definition would result in private companies, AIM listed companies and third sector companies (eg not for profit) with in excess of 750 employees and £750m turnover brought into PIE net. It has been estimated that this would create another 600 PIE audits and there would be further repercussions across the audit industry if that were to happen.
“Nevertheless, our aim is to achieve the highest possible standards for all of our clients and hopefully we will be ready for any new entrants to the PIE audit marketplace.”
If you would like any further information about RPG’s audit services and indeed the benefit of having an audit, please do not hesitate to call us on 0161 608 0000 or email info@rpg.co.uk
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