FRC consults on revisions to Ethical Standard for auditors

August 8, 2023

The Financial Reporting Council (FRC) has today issued a consultation on revisions to the FRC’s Ethical Standard to further enhance and clarify the principles of integrity, objectivity and independence auditors must abide by.

In the FRC’s 2022 position paper on audit market reform, the FRC committed to revising the Ethical Standard, and to consult at the same time about the withdrawal of the Other Entities of Public Interest (OEPI) category introduced in 2019. This is in light of the government’s proposed changes to the statutory Public Interest Entity (PIE) definition.

The proposed revisions to the Ethical Standard enhance prohibitions where an audit firm’s independence could be threatened by an economic over reliance on fees from specific entities that are connected. Other changes to prohibitions reflect relevant findings from audit inspections and enforcement cases.

Additional changes reflect significant developments in the International Ethics Standards Board for Accountants (IESBA) Code since the FRC last revised the Ethical Standard in 2019. These ensure that the UK’s Ethical Standard is no less stringent than the international code.

The new standard has also been revised to ensure breaches of ethical standards are reported to the FRC on a more timely basis.

The FRC’s Executive Director of Regulatory Standards, Mark Babington said:

“High standards of ethical behaviour go to the heart of high-quality audit and are designed to ensure auditors act with independence, objectivity and integrity at all times.

While many of these proposed changes reflect developments at the international level, additional enhancements have also been introduced to ensure the ethical requirements are clearly understood and abided by so that there can be no uncertainty of the standards expected.”

The consultation closes on 31 October 2023.

[Financial Reporting Council, UK]