The government is set to pass the law under secondary legislation next month when it introduces a statutory instrument (SI) applying to companies, The Statutory Auditors and Third Country Auditors Regulations 2016, which is likely to come into force from 17 June 2016.

A BIS spokesperson told Accountancy that ‘the regulations need to be published, then debated and passed. There is no reason for any delay in meeting the June date’.

The measure will be debated in parliament before it is passed into UK law by the mid-June deadline.

In anticipation of the new SI, the Financial Reporting Council issued a revised version of the Corporate Governance Code 2016 and amendments to existing International Standards on Auditing (ISAs) on 27 April. All documents were released in draft form pending the introduction of the necessary statutory amendments.

In an impact assessment released by the Department for Business, Innovation and Skills (BIS) in June 2015, the government estimated that the new rules will have a net cost to business of £39.61m a year. Initial costs will see public interest entities (PIEs) and auditors exposed to familiarisation and implementation costs of approximately £72.66m, with additional costs for unlisted insurers of setting up audit committees and increased costs around the requirement for more frequent audit committee meetings.

There are an estimated 1,665 PIEs affected by the new rules, based on data from the UK Listing Authority Official List and Bank of England.

The added costs are a result of the tighter scrutiny of the audit process and the introduction of tough new audit rotation rules, which are set to clamp down on any audit engagement over 10 years in length.

The UK regulator – the FRC – has already set these requirements for the UK under its comply and explain rules, which has produced an increase in tender activity over the last three years among PIEs within FTSE 350 companies.

One of the benefits of the new rules should see a loosening of current requirements for audit firms to operate in EU member states.

The impact assessment document from BIS states: 'Mutual recognition of audit firms across Member States will result in the reduction of the administrative costs of applying for a new licence in each Member State in which the auditor wishes to operate and could open up access to audit markets across the EU, increasing competition.'

Further reading

Find out more about the new ISAs at Snapshot: FRC revises ISAs to reflect EU Audit Directive Rules

For the latest audit tender activity, read FTSE 100 Auditors Survey 2015

The draft SI, The Statutory Auditors and Third Country Auditors Regulations 2016, is available here