Mutual Recognition Agreements
Published: 11 December 2024
5 minute read
In this In Conversation podcast episode, Daniel Ellis, Senior Public Affairs Manager, is joined by Alison Stiles, Project Manager in the Professional Bodies Supervision team, to discuss the FRC’s work on Mutual Recognition Agreements (MRAs) and the recent Law and Practice Assessment regarding Switzerland. Discover how these MRAs support the international exchange of audit expertise and make it easier for skilled professionals to work across different countries.
Transcript
0:10
Hello and welcome to this FRC in Conversation podcast.
0:14
My name is Daniel Ellis.
0:16
I'm Senior Public Affairs Manager here at the FRC, and today I've been joined by Alison Styles, who is Mutual recognition agreement and Education Project Manager in our professional bodies supervision team.
0:26
Hello, Alison.
0:27
Morning, Daniel.
0:28
Great to be here.
0:29
Thanks, Allison.
0:30
So we're here today to discuss some of the FRC's international work with overseas regulators when it comes to the oversight of auditors.
0:37
And Allison, one of the FRC's priorities has been to support the delivery of those mutual recognition agreements or MRAs with other countries.
0:45
Can you briefly give listeners an overview of what an MRA is?
0:49
Yeah, sure.
0:50
It's probably worth saying that the audit sector as a whole benefits where there's exchange of international expertise, particularly across sectors that span countries and continents, such as the technology sector, the pharmaceutical sector.
1:04
But there's no automatic international recognition of audit qualifications or of the right to sign audit reports.
1:12
Qualifying as an auditor usually involves at least three years of supervised training and the requirement to complete lots of.
1:19
So qualifying for the second time in a different country is not a quick process.
1:25
The FRC's role is that it has the power to enter into mutual recognition agreements with third countries and that means that the right to sign audit reports in one country is recognised in the other country and that effectively removes the need for statutory auditors moving between countries to re-qualify.
1:43
There might be a need for a top up in the other country, such as an exam in that country's tax and law, but that's a much quicker process than the full re-qualification would be.
1:52
And therefore, if we have MRA, it helps to facilitate the exchange of international audit expertise and this can help alleviate resource constraints and support career development for statutory auditors.
2:05
The FRC's powers in this area were delegated to the FRC by the Secretary of State.
2:10
And the FRC will only deploy its powers to recognise audit rights from third countries where it's fully satisfied that the qualification in the third country gives a comparable level of professional competence to the UK audit qualification.
2:25
And also where it's satisfied that the treatment that UK statutory auditors will receive in that third country is comparable to the treatment that will be given to statutory auditors, auditors from the third country in the UK.
2:38
Thanks, Alison.
2:39
You briefly touched in there about some of the benefits of these MRAs.
2:42
But when you're thinking about auditors, when you're thinking about the wider audit sector, what are the benefits to them?
2:48
Where we do enter into these MRAs, I think the key benefit is that it facilitates the exchange of international expertise across sectors and many of those sectors might be significant growth areas for the UK, MRA removed the need for statutory auditors to re qualify in another country and that facilitates the exchange of skilled resource at a senior level and that helps to support career development and attraction to the profession.
3:17
It positions the profession as one in which international mobility is a not option and we believe that helps to support future growth and the future of the profession too.
3:26
So these are really helpful to auditors to the wider audit profession.
3:29
Are you able to outline which countries the FRC has so far signed MRAs with and what impact we have seen so far as a result, if any?
3:37
Yes.
3:38
So in 2023, FRC signed agreements with Australia, New Zealand and Switzerland for mutual recognition of audit qualifications and applications are already underway.
3:50
So we know that those processes are in play and we're looking forward to auditors coming through the pipeline and moving between the the countries in question.
3:58
You just mentioned that we've signed an MRA with Switzerland and when this podcast going out, it will be roughly one year since we've signed that.
4:05
What work have we done in the interim since signing that MRA?
4:09
Yeah, the FRC conducted a further assessment following the MRA that was signed with Switzerland in December 2023.
4:17
And that further assessment has the outcome that Swiss ordinary audit experience can count towards the statutory audit experience requirements for the award of AUK audit qualification.
4:29
And what that means is that students who are registered with UK professional bodies and who are studying towards the UK audit qualification are able to count Swiss ordinary audit experience towards the audit time requirements, and that will help them to complete their qualification.
4:47
And the assessment that we undertook looked in a lot of detail at the law and practise relating to statutory audit in the UK and in Switzerland and considered the extent to which the two were similar.
4:59
The assessment looked at factors like the rights and duties of auditors as set out in the law, what financial reporting frameworks were used and what auditing frameworks and standards were used, and whether there was comparability across the ethical codes that auditors are required to follow in both countries.
5:16
Our conclusion was that Swiss law and practise relating to ordinary audit in Switzerland is similar to UK law and practise relating to a statutory audit and this decision was approved by FOC's Executive Committee in October 2024.
5:29
So Alison, what does this decision mean for UK registered students?
5:34
Yeah, this is really good news for UK registered students.
5:37
If a student registered with the UK professional body and you're studying towards the UK audit qualification, you can count Swiss ordinary audit experience towards the statutory audit time requirement that you have to complete in order to be awarded your qualification.
5:53
For example, Deloitte and KPMG operate merged UK Swiss practises.
5:58
If students are registered with UK professional bodies and they're working on Swiss ordinary audits either in Switzerland or in the UK, the time that they're spending on those audits can now count towards the time requirements for the award of a UK statutory audit qualification.
6:15
It does have to meet the other requirements of the professional body and those will include that it has to be properly supervised and take place in a training office authorised by the body.
6:25
But the good news is we think it will increase the pipeline of students able to complete the time requirements for the award of the UK audit qualification.
6:34
And we anticipate that the effect of that will be there for to increase the pipeline of future statutory auditors.
6:40
And Alison, you just mentioned the UK professional bodies.
6:42
What opportunity does this decision give for them?
6:45
Where the UK professional bodies have training offices that are authorised in Switzerland, students training in those offices will now be able to count time that they spend on Swiss ordinary audits that's gained under appropriate supervision in those offices towards the award for UK audit qualification.
7:03
So it gives the UK bodies an opportunity to support those students and potentially to grow those student numbers.
7:11
Thanks Alison.
7:12
So if we step back slowly, how does the FRC's work on these MRAs and then specifically with this law and practise assessment support the future of the wider audit profession?
7:23
With the MRA work, we have exchange of international expertise, we have mobility across sectors and that strengthens the quality of audit and the attractiveness of the profession.
7:35
With the assessment of Swiss law and practise, we have opportunities for students to count more of the time that they spend in the workplace towards the time requirements to gain a UK audit qualification.
7:49
And that means we would expect an increase in the number of statutory audit auditors in the future.
7:54
So that increases the pipeline of professionals that we have that supports the future of the profession in that way.
8:02
Thanks Alison.
8:03
This has been a really helpful overview of the FRC's work on these MRA's and more specifically on the Switzerland Law and Practise assessment.
8:10
More detail on both these can be found on the FRC's website.
8:14
So all that's left for me to do is thank you Alison for joining and thank everyone else for listening.
8:19
Thank you.