Chapter 3

Question 1

What is the FRC boards role?

Answer 1

• To set high standards of corporate governance through the UK Corporate Governance Code
• To set standards for corporate reporting and actuarial practice
• To monitor and enforce accounting and auditing standards
• To oversee regulatory activities of the actuarial profession and professional accountancy bodies
• To operate independent disciplinary arrangements for public interest cases

Question 2

What 2 committees are the FRC board responsible for?

Answer 2

• The Codes and Standards Committee
• The Conduct Committee

Question 3

What is The Codes and Standards Committee responsible for?

Answer 3

The Codes and Standards Committee is responsible for advising the FRC Board on maintaining an effective framework of UK Codes and standards for Corporate Governance, Stewardship, Accounting, Auditing and Assurance and Actuarial technical standards

Question 4

What is the Conduct Committee responsible for?

Answer 4

The Conduct Committee is responsible for overseeing the FRC’s Conduct Division. Its responsibilities include overseeing:

• Monitoring of Recognised Supervisory and Recognised Qualifying Bodies
• Audit Quality Reviews (Monitors quality of listed audits)
• Corporate reporting reviews
• Professional discipline
• Oversight of the regulation of accountants and actuaries

Question 5

What are the 3 significant reviews that have recently been published that could influence the future of audit?

Answer 5

• Kingman Review
• Competitions and Market Authority’s Review (CMA)
• Brydon Report

Question 6

What is the Kingman Review?

Answer 6

The Kingman review resulted in the
wake of some high profile corporate
collapses of Carillion and BHS – where
some stated that the audit was a
colossal waste of time and money
providing only false assurance.

The Kingman review was published in
December 2018 and recommended the
abolition of the FRC replacing it with a
new Audit, Reporting and Governance
Authority (ARGA)

It is anticipated that the new ARGA will:
- Directly regulate the biggest audit
firms

• Impose greater sanctions in cases
  of corporate failure
• Require rapid explanations from
  companies
• Publish reports about company’s
  conduct and management

Question 7

What is the Competitions and Market Authority’s review (CMA)?

Answer 7

The CMA made some recommendations
having reviewed the state of the audit
market.

The key recommendations were:
- Greater oversight of audit
committees and the role they play
to ensure audit quality

• A split between the Big Four’s audit
  and non-audit businesses to ensure
  focus on quality
• A five-year review of the state of the
  industry
• Mandatory joint audits to increase
  the ability of smaller firms to
  compete with the Big-Four

(Joint audit are where 2 audit firms jointly
perform the work and jointly sign the
auditor’s report, making them jointly liable
for any audit failure)

Question 8

What is the Brydon Report?

Answer 8

This report called for urgent reform to
rebuild public trust in the audit.

Key recommendations:
- Separation of the audit profession
from the accounting profession

• A redefinition of audit and its
  purpose
• Introduction of the word suspicion
  into qualities of audit
• To increase audit responsibilities
  beyond the financial statements
• Greater engagement with
  shareholders
• Change the language of the
  opinion given
• Greater clarity around the role of
  the audit committee
• Improved auditor transparency