Change of Auditor Flow Chart for Audit Firms

Published: 25 September 2023

3 minute read

Process when the Auditor ceases to hold office (where the entity is in scope of the Companies Act 2006)

Flow chart showing the process when the Auditor ceases to hold office. Content explained in this section.

Flow chart showing the process when the Auditor ceases to hold office

The figure is a flow chart with 14 labeled boxes linked by arrows. The chart is single-directional. At each step, arrows point forward to one or more boxes. Below the flow chart is described as lists in which the possible next steps are listed beneath each box label.

  1. Auditor ceases to hold office
    1. Forward to Is the company a Public Interest Company?
  2. Is the company a Public Interest Company?[1]
    1. If “Yes”, The Auditor must send a statement of the reasons for ceasing to hold office to:
      1. The Company (s.519 Companies Act 2006 (“CA06”))
      2. The FRC (s.522 CA06)

        And also to Companies House, if the company does not apply to the court under section 520.
    2. If “No”, Forward to Is the company a Public company or a private company?
  3. Is the company a Public company or a private company?
    1. If “Public”, Proceed to Part 1.
    2. If “Private”, Proceed to Part 2.

Part 1 – Public company

  1. Is the reason the auditor is ceasing to hold office an exempt reason?[2]
    1. If “Yes”, forward to Are there any matters which the auditor considers need to be brought to the attention of the members or the creditors of the company?
    2. If “No”, forward to Did the auditor cease to hold office at the end of an accounts meeting?[3]
  2. Are there any matters which the auditor considers need to be brought to the attention of the members or the creditors of the company?
    1. If “Yes”, forward to Did the auditor cease to hold office at the end of an accounts meeting?[3]
    2. If “No”, No further action
  3. Did the auditor cease to hold office at the end of an accounts meeting?[3]
    1. If “Yes”, As a matter of best practice, auditors should provide a statement of matters which need to be brought to the attention of the members or creditors of the company when the auditor ceases to be appointed at the end of an accounting meeting, although there is no legal obligation to do so.
    2. If “No”, The Auditor must send a statement of the reasons to:
      1. The Company (s.519 CA06)
      2. The RSB of the outgoing auditor (s.522 CA06)

Part 2 – private company

  1. Is the reason the auditor is ceasing to hold office an exempt reason?[2]
    1. If “Yes”, forward to Are there any matters which the auditor considers need to be brought to the attention of the members or the creditors of the company?
    2. If “No”, forward to Did the auditor cease to hold office at the end of a period for appointing an auditor?[4]
  2. Are there any matters which the auditor considers need to be brought to the attention of the members or the creditors of the company?
    1. If “Yes”, forward to Did the auditor cease to hold office at the end of a period for appointing an auditor?[4]
    2. If “No”, No further action.
  3. Did the auditor cease to hold office at the end of a period for appointing an auditor?[4]
    1. If “Yes”, As a matter of best practice, auditors should provide a statement of matters which need to be brought to the attention of the members or creditors of the company when the auditor ceases to be appointed at the end of the period for appointing an auditor, although there is no legal obligation to do so.
    2. If “No”, The Auditor must send a statement of the reasons to:
      1. The Company (s.519 CA06)
      2. The RSB of the outgoing auditor (s.522 CA06)

Form of the statement

The statement must include:

  1. The auditor’s name and address
  2. The number allocated to the auditor on being entered in the register of auditors kept under section 1239 CA06;
  3. The company’s name and registered number.

Where there are matters connected with an auditor’s ceasing to hold office that the auditor considers need to be brought to the attention of members or creditors of the company, the statement under this section must include details of those matters.

If the auditor considers that none of the reasons for ceasing to hold office and no matters (if any) connected with the auditor’s ceasing to hold office, need to be brought to the attention of members or creditors of the company, the statement must include a statement to that effect.

How to send the statement to the FRC

The notifications to the FRC should be sent by email to: [email protected]

How to send the statement to the RSB

The RSB (Recognised Supervisory Body) is the body with which the audit firm is registered and which is responsible for the direct regulation of that audit firm. This will be one of the ACCA, ICAEW, ICAS or CAI.

Guidance on notifying changes of auditors to the RSBs can be found on the website of the RSB.

Footnotes

  1. [1]

    Section 519A CA06 defines a Public Interest Company as a company which is:

    a) An issuer whose transferable securities are admitted to trading on a UK regulated market;

    b) A credit institution within the meaning given by Article 4(1)(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council, which is a CRR firm within the meaning of Article 4(1)(2A) of that Regulation; or

    c) An insurance undertaking as defined in Article 2(1) of Council Directive 91/674/EEC of 19 December 1991 of the European Parliament and of the Council on the annual accounts and consolidated accounts of insurance undertakings as that Article had effect immediately before IP completion day, were the United Kingdom a member State.

    “Issuer” and “regulated market” have the same meaning as in Part 6 of the Financial Services and Markets Act 2000.
  2. [2]

    Section 519A(3) of CA06 defines “exempt reasons” as circumstances where:

    a) The Auditor is no longer to carry out statutory audit work within the meaning of Part 42 (see section 1210(1));

    b) The company is, or is to become, exempt from audit under section 477, 479A or 480, or from the requirements of this Part under section 482, and intends to include in its balance sheet a statement of the type described in section 475(2);

    c) The company is a subsidiary undertaking of a parent undertaking that is incorporated in the United Kingdom and

    - The parent undertaking prepares group accounts, and

    - The Auditor is being replaced as auditor of the company by the auditor who is conducting, or is to conduct, an audit of the group accounts;

    d) The company is being wound-up under Part 4 of the Insolvency Act 1986 or Part 5 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), whether voluntarily or by the court, or a petition under Part 4 of that Act or Part 5 of that Order for the winding up of the company has been presented and not finally dealt with or withdrawn.

    The reason described in c) above is only an exempt reason if the auditor who is conducting, or is to conduct, an audit of the group accounts is also conducting, or is also to conduct, the audit (if any) of the accounts of each of the subsidiary undertakings (of the parent undertaking) that is incorporated in the United Kingdom and included in the consolidation.
  3. [3]

    The end of an accounts meeting for a public company is the date of a general meeting of the company at which the company's annual accounts and reports are (or are to be) laid in accordance with section 437 CA06.
  4. [4]

    Section 485(2) of the Companies Act 2006 provides that the period for appointing an auditor of a private company is the end of the period of 28 days beginning with:

    - the end of the time allowed for sending out copies of the company's annual accounts and reports for the previous financial year (see section 424), or

    - if earlier, the day on which copies of the company's annual accounts and reports for the previous financial year are sent out under section 423.

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