Registration of Third Country Auditors
In respect of audits of financial statements for periods starting after 31 July 2012:
Dubai International Financial Centre
Isle of Man
In respect of audits of financial statements for periods starting after 31 July 2016:
The Commission made these equivalence decisions on the basis that Member States would disapply some or all of the regulatory requirements that would otherwise apply, in particular the Member State’s system of external quality assurance. In the UK auditors from equivalent countries will have to register with the FRC but, in common with other Member States, the UK system of external quality assurance reviews will not apply, other than in respect of audits of clients outside the scope of the “home” regulatory regime, and provided that UK auditors of companies listed in that third country are not subject to less favourable treatment.
The Commission Decision of 19 January 2011, as amended by the Commission Decision of 25 July 2016 (2016/1223) also exempts for a transitional period auditors of companies incorporated in certain third countries from most regulatory requirements of Article 45 of the Statutory Audit Directive, on the condition that they provide relevant Member States with specific information. This is based on an assessment that the country is making substantial progress towards setting up an audit regulatory system equivalent to that required in the EU, though has not yet achieved this.
Auditors from transitional countries have to register with the FRC but, in accordance with EU requirements, are exempt from other regulatory requirements (other than in respect of any audits of companies incorporated outside their “home” country).
The following are transitional countries in respect of audits of accounts for periods beginning between 2 July 2010 and 31 July 2018:
“Article 45” countries
Countries that are neither “equivalent” nor “transitional” are termed “Article 45 countries”, as the full requirements of Article 45 of the SAD apply to third country audit entities established in such a country. In particular the audit entity is required to register with the FRC and is subject to the FRC system of external quality assurance in respect of relevant audits.
The FRC published a consultation document in March 2012 on the approach it should adopt to external quality assurance of Article 45 third country auditors. The consultation together with the responses and feedback paper can be found here.
In general, audit entities registered in accordance with Article 45 are based in countries that do not have well developed systems of audit regulation or independent external inspection systems. There are, however, also wide variations in the significance of individual issuers for UK investors. Therefore, the FRC has adopted a risk-based approach with the aim of proportionate and cost effective regulation.
One of the conditions of registration under Article 45 is that the firm agrees to cooperate with an inspection by the FRC in respect of relevant audits. An “Article 45” registered audit entity may therefore be selected for such an inspection. In addition we may select for review an audit engagement undertaken by an “equivalent” third country auditor, where that engagement is outside the scope of the home regulatory authority’s inspection arrangements.
FRC inspections of third country auditors started in the summer of 2013. The results of our inspections for 2013/14 can be found here (PDF). The results of our inspections for 2014/15 can be found here (PDF) (refer to section six). The results of our inspections for 2015/16 can be found here (refer to pages 45 to 48 of the main ‘Developments in Audit 2015/16’ full report).
How do I apply to register as a third country audit entity?
Details and guidance on how to apply for registration as a third country auditor can be found here.