Regulatory Background
Published: 25 September 2023
3 minute read
Third Country Auditor Regime
The regime ensures that auditors from third countries perform high-quality work. It applies to non-UK auditors of companies incorporated outside of the UK and listed on an UK-regulated market. This is most commonly the main market of the London Stock Exchange.
Role of the FRC
The FRC has statutory powers delegated by Government to set the detailed regulatory requirements concerning the third country auditor regime in the UK.
In practice, the FRC is responsible for maintaining the UK Register of Third Country Auditors (including registering and deregistering third country auditors) and for performing external quality monitoring of audits performed by certain third country auditors.
The UK requirements are established within the legal framework set out in the Companies Act 2006 (Part 42 and Schedule 12), the Statutory Auditors and Third Country Auditors Regulations 2013 (SI 2013/1672) and the Statutory Auditors and Third Country Auditors Regulations 2016 (SI 2016/649) (as amended) and the Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (SI 2019/177) as amended by the Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) (No. 2) Regulations 2020 (SI 2020/108).
Who is required to register as a third country auditor?
An auditor (individual or firm) must register with the FRC in order to provide an audit report concerning the annual or consolidated accounts of a company incorporated outside the UK, whose transferable securities are admitted to trading on a UK regulated market.
However, registration is not required if the company only has debt securities admitted to trading on a UK regulated market and those debt securities are in the denomination of:
- If admitted to trading on or before to 31 December 2010: at least €50,000 or an equivalent amount; or
- If admitted to trading after 31 December 2010: at least €100,000 or an equivalent amount.
An audit report of a relevant issuer that is signed by an auditor that is not registered with the FRC as a third country auditor has no legal effect in the UK.
The registration requirements differ depending on the jurisdiction where the auditor is located. No registration is required if the auditor is a registered auditor in the UK. There are three types of jurisdiction for the purposes of registration requirements:
Equivalent jurisdictions
It has been determined that certain jurisdictions have a system of audit regulation that is equivalent to that of the UK. (While the UK was an EEA member state, decisions on ‘equivalency’ were made by the European Commission. Moving forward, the Secretary of State will make such decisions under s.1240A of the Companies Act 2006 and the Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations (SI 2020/108).)
Auditors from equivalent jurisdictions have to register with the FRC but, they are not subject to the full requirements that apply to third country auditors. For example, the UK system of external quality assurance reviews does not apply to auditors from equivalent jurisdictions. Further details of the requirements that are disapplied in respect of third country auditors are set out in the FRC’s Statutory Directions.
The FRC has issued amended statutory Directions under sections 1239(7) and 1242(4) of the Companies Act 2006 to reflect the end of the UK’s membership as an EEA state, which are set out in the below document.
| Name | TCA Directions |
|---|---|
| Publication date | 20 October 2016 |
| Type | Information sheet |
| Format | PDF, 134.8 KB |
Transitional jurisdictions
It may be determined that certain jurisdictions have a system of audit regulation that is sufficiently robust to merit being considered as a transitional third country for a period of up to seven years.
Auditors from these countries are treated the same as auditors from equivalent jurisdictions for as long as the jurisdiction holds transitional status.
There are currently no jurisdictions which hold transitional status.
Full Registration jurisdictions
Auditors from jurisdictions that are neither equivalent, nor transitional are required to comply with the full requirements of the regulatory regime that applies to third country auditors that is set out in UK legislation.
This, in particular, includes being subject to the UK’s system of external quality assurance, which includes inspections in respect of relevant audits. The cost of the inspection is charged to the third country auditor.
FRC inspections of third country auditors started in the summer of 2013. The results of our inspections can be found in the FRC Developments in Audit publication.
Third Country Auditor Register Procedures
The FRC has the power to remove a third country auditor from the UK Register of Third Country Auditors in certain circumstances set out in the Companies Act 2006 and Statutory Auditors and Third Country Auditor Regulations 2013 (as amended).
The process for the de-registration of third country auditors (where the FRC Board considers there to be grounds for removing a third country auditor from the UK Register of Third Country Auditors) is set out in the Third Country Auditor Register Procedures.
The FRC produced the Third Country Auditor Register Procedures. These were drafted based on a public consultation.