Six months after becoming the UK's competent authority for audit, and less than two weeks after its annual priorities meeting, the FRC has published an update on its Developments in Audit report. It found that audit committee chairmen remain ‘overwhelmingly positive’ as to tendering developments and audit quality. Of those entities responding to the survey that had carried out an audit tender, 70% changed auditors and of those 18% think there has been a significant change for the better in audit approach and quality.

However, concerns have been raised that in dealing with perceived conflicts of interest, not all audit firms are demonstrably serving investors’ interests. The FRC says that a faster pace of improvement in, and greater consistency of, audit quality requires strong leadership of, and the right culture in, the audit firms.

Since the publication of the first Developments in Audit report, the FRC has issued a revised audit firm governance code, which became effective for financial years beginning on or after 1 September 2016. The code, which operates on a comply or explain basis, applies to firms auditing 20 or more listed companies, but may be adopted on a voluntary basis by other firms. Currently the FRC says it is aware of eight UK firms which apply it.

In the light of the latest findings, the FRC proposes to review the effectiveness of governance and the culture of firms adopting its audit firm governance code in 2017/18, something it pledged to undertake at its priorities meeting. Part of this will involve looking at the firms’ response to a revision of the code, which clarifies and emphasises the public interest role of independent non-executives of those firms.

The regulator also plans to increase the transparency of its audit quality reviews on individual audit engagements. It will now publish periodic lists of those entities whose audits it has reviewed.  The FRC says that as a result of this increased transparency, it expects to see increased reporting by audit committees on its findings and increased investor scrutiny of audit quality, including the actions taken by both the auditor and audit committee to address issues where appropriate.

Publication will be done periodically, after the publication of the entity’s next annual report and accounts following inspection, with the first list of entities reviewed in 2016/17 due out shortly. The FRC says it expects to publish further details of audits reviewed by AQR on a quarterly basis on its website.

Melanie McLaren, FRC board member and executive director, audit and actuarial regulation, said: ‘The FRC is determined to make a success of our competent authority status and, in liaison with the professional bodies for audit, will promote further improvements in audit quality.

‘In doing so we will work with auditors, audit committees and investors to highlight good practice and advocate continuous improvement; keeping pace with, and accelerating changes in, audit and its use of technology in improving effectiveness and quality. In doing so we will continue to challenge and hold the leadership of the audit firms to account.’

Developments in audit February 2017 update is here.