As Deloitte reveals plans to implement FRC audit firm split, Accountancy Daily reviews progress ahead of October deadline
Deloitte is to set up an independent audit governance structure, claiming the first of the Big Four to respond to demands from the Financial Reporting Council (FRC) for an operational separation of audit from the rest of the firm’s business.
But behind the scenes, the other Big Four firms of PwC, KPMG and EY are busy putting the finishing touches to their own plans. Some of the proposals have already been enacted, pre-empting the demands from the FRC.
All the firms will be required to share their plans with the accountancy regulator, which has set a deadline of 23 October 2020 for delivery of the proposals.
Deloitte said will establish an independent audit governance board (AGB), with responsibility for providing independent oversight of the UK audit practice from 1 January 2021.
The firm said the AGB will have a focus on the policies and procedures for improving audit quality and on ensuring the FRC’s ‘objectives of, and desired outcomes for, operational separation are met’.
PwC, the largest of the Big Four, has already implemented a number of steps to create an operationally separate audit practice. A spokesperson for the firm said: ‘We continue to engage constructively with the FRC on the principles of operational separation. The proactive steps we took a year ago to create a distinct audit practice as part of our programme to enhance audit quality mean we are already aligned with many of the principles. We have already taken steps to enhance audit governance and our plans build on this strong foundation.’
KPMG is understood to have also taken a number of steps that address the majority of the principles set out by the FRC and is reviewing the detail of its audit board and governance. In a statement, Jon Holt, KPMG’s UK head of audit, said: ‘KPMG supports operational separation in the UK. We are committed to working with the FRC to help shape the future for a profession which delivers high quality audits, acts in the public interest and supports successful and attractive capital markets around the world.
‘We are well advanced in our work to achieve operational separation and have already taken action which demonstrates how serious we are about rebuilding trust in our profession. For example, we were the first firm to announce the discontinuance of non-audit services to FTSE 350 companies we audit, to introduce graduated findings in our audit reports and to change our governance to create a separate audit board, which is solely focused on the performance management of our audit business.
‘We will submit our detailed implementation plans to the FRC by their deadline of 23 October.’
EY, however, declined to comment on progress.
Back in February this year, the FRC wrote to the UK’s largest seven audit firms setting out its expectations for operational separation to bring about audit quality improvements and audit market resilience.
Claire Lindridge, the FRC’s Director of Audit Firm Monitoring and Supervision (AFMAS) said: ‘The FRC’s focus is to ensure audit firms put audit quality front and centre, with new independence and financial transparency guidelines to support this. We expect the firms to put in place independent governance for the audit practice and ensure that the audit practice is appropriately ringfenced from the rest of the firm so that financial results are clear and transparent.’