Audit Market Supervision (overview)
Published: 7 June 2024
2 minute read
Background
The FRC has three teams within the Supervision Division – Audit Market Supervision, Audit Firm Supervision and Audit Quality Review, that work together to undertake the regulation of UK statutory auditors and audit firms and for monitoring developments, including risk and resilience, in the market. We aim, through our supervision and oversight, to develop a fair, evidence-based and comprehensive view of these firms, to judge whether they are being run in a manner that enhances audit quality and supports the resilience of individual firms and the wider audit market.
Audit Market Supervision (AMS) takes a cross-market approach to areas of importance to audit quality and firm resilience. We have a range of backgrounds (governance, risk management, external audit, internal audit, culture and regulation) representing the broad AMS subject matter. Our AMS work is carried out under the five pillars as described below.
Audit practices’ Systems of Quality Management
The new quality management standards (ISQM (UK) 1 & ISQM (UK) 2) require firms to approach their quality management in a more tailored, iterative and holistic way. ISQM (UK) 1 requires firms to establish and maintain a system of quality management, centring on establishing quality objectives, identifying and assessing quality risks, and designing and implementing responses to them. ISQM (UK) 2 specifically covers the requirements relating to the use engagement quality reviews in this system.
Our work assesses the firms’ ongoing design and operation of their systems of quality management, including how they are tailored to firms’ specific circumstances. Our work also includes monitoring the firms’ compliance with the Revised Ethical Standard 2019 and reviewing their reporting of ethical breaches.
Risk and Resilience
Enhancing the resilience of the UK audit market is a key FRC objective. We assess and monitor various aspects of firms’ risk management frameworks and the firms’ crisis and contingency planning. We also monitor firms’ liquidity and access to credit, as well as the adequacy of firms’ professional indemnity insurance coverage.
Culture and Conduct
Audit firms need the right culture to drive the right behaviours which are necessary for high-quality audits. We undertake work to assess and monitor various aspects of the culture in the audit practice at Tier 1 and Tier 2 firms, proportionately. We also monitor ethical conduct matters at these firms, including non-financial misconduct.
Governance and Leadership
We promote good governance and leadership at the largest audit firms because well-governed and well-run audit firms are more likely to deliver consistently high-quality audits and to be operationally and financially resilient. The firms we regulate audit the UK’s largest companies and we want the public interest to be a key consideration in decision-making.
Audit Market Monitoring
Our Audit Market Monitoring function focuses on monitoring emerging or growing risks in the audit market which could affect audit quality, resilience, capacity or competition.