The FRC has updated its ethical standards for auditors. Effective from 15 December 2024.
The FRC said the changes do three main things:
• Firstly, the FRC has simplified the existing ethical standard and provided additional clarity in a limited number of areas to respond to feedback from auditors.
• Second, the new standard takes into account recent revisions made to the international IESBA Code of Ethics.
• Thirdly, the FRC has added a new targeted restriction on fees from entities related by a single controlling party. This is in response to issues identified through FRC audit inspection and enforcement cases.
FRC believes the new standard will be better targeted and proportionate. For example, additional requirements in respect of ethical breach reporting by audit firms to the regulator have been removed as it would be likely to drive inconsistent reporting behaviours. With regard to tax services provided to the controlling shareholders of unlisted companies the FRC is enhancing the independence risk assessment around these services rather than specifically prohibiting them.
The FRC notes that a significant number of consultation responses referred to issues that are matters of government policy rather than decisions that can be taken by the FRC. These include the impact of the non-audit service fee cap for auditors of Public Interest Entities and how it might impact on assurance, including sustainability and climate information produced by companies. The FRC will share this feedback with the Department for Business and Trade.
Alongside the revised ethical standard, the FRC has also released guidance for auditors on the application of the Objective, Reasonable and Informed Third Party test, which forms a key part of many requirements in the ethical standard.
