Statutory Auditors and Third Country Auditors Regulations 2016 — House of Lords, 2016-06-13
Topic: Domestic Commerce
James Stopford (Conservative, Centre-right): My Lords, I thank my noble friend and the noble Baroness for their contributions to this short debate. I know both of them feel that effective financial management underpins the success of every business, and the quality and reliability of financial reporting in the UK is well regarded. Consequently, it will also be a priority of this Government to maintain the rigour and integrity of the UK’s audit regime. Although the regulations are largely regulatory they should place very low additional costs on business. Furthermore, compulsory retendering of audits should increase competition—notwithstanding what my noble friend said—and choice in the marketplace Although the application of the requirements to auditors of LLPs goes beyond the minimum requirements of the audit directive and regulation, it will implement the recommendations of the Competition and Markets Authority and meet the understandable desire of users and preparers of accounts for consistency in financial frameworks My noble friend and the noble Baroness, Lady Hayter, asked a number of questions. I will deal first with the questions asked by the noble Baroness. In her first question she asked whether the regulated community was involved in planning but also representatives of the wider community—consumers, investors and employers. As I said in my earlier speech, the Government have conducted two full public—I emphasise "public"—consultations on implementation. Respondents included representatives of companies and investors who are also effectively the consumers of audit services in this context. I am not aware at this stage of interest from any employee representatives but the ability for representations to be made in both consultations was there at that point The noble Baroness also asked about the need to include wider interests such as consumer, investor and employer representatives in the governance structure of the FRC. As part of current discussions relating to the status of the FRC as a public body the Government and FRC are likely to review the current accountability framework and to consider whether changes are needed following the implementation of the directive and regulation. I am sure that interest from these groups will be considered where it is expressed. It is fair to say that the interests of investors in particular are of great concern to the FRC and all its work The noble Baroness also mentioned leaving the regulation of audit to the existing regulatory supervisory bodies. The experience and skills of the professional bodies are vital to the quality of audit and accounting in the United Kingdom, which is why the United Kingdom successfully made the case in Brussels for their continued involvement in audit regulation. However, we also support independent oversight of the profession as envisaged by the directive and regulation. The FRC therefore has had to have power and discretion to reclaim tasks from the RSBs where necessary The line in the EU reforms is between PIE audits, where inspections, most investigations and enforcements cannot be delegated, and other audits, where these tasks can be delegated. The regulations place the FRC as a competent authority in charge of delegation decisions. We do not want to tie its hands unduly. The FRC works closely with other regulatory authorities such as the Financial Conduct Authority and the Bank of England to identify areas of risk. We would expect any such areas of concern to be identified through consultation. This would all be subject to a direction from the Secretary of State which will oblige the FRC to work on the basis that it will delegate all tasks wherever possible The noble Baroness also asked whether I could outline the governance mechanism and criteria behind such a judgment and whether there would be any transparent criteria upon which any RSB competency would be judged. The FRC will delegate tasks on the basis that it can update from time to time the conditions which it will set when making the delegation. We will expect any conclusion that an RSB is unable to carry out tasks for a particular type of audit to be based on whether these conditions are met. The conditions will be set out in written delegation arrangements, which the FRC is currently discussing with the RSBs The noble Baroness also asked about an appeal mechanism for an RSB against such a judgment. There is no prescribed appeal system, but if the RSB considered that the FRC had acted unreasonably, it would have recourse to judicial review The noble Baroness also asked whether there would be some form of continual review of this matter. There will be continuing discussions on these regulations between the FRC and the Government My noble friend Lord Hodgson, with all his experience—