Important communications: Key matters that audit firms must communicate and when

Audit firms must meet specific reporting requirements under the Audit Regulations. This includes nominating alternate arrangements, notifying ICAS of significant audit client changes and reporting breaches of the Ethical Standard.

Alternate arrangements

In June 2025, Audit Regulation 2.02A introduced the requirement for all sole practice audit firms to nominate an alternate. This arrangement takes effect if the sole practitioner becomes incapacitated or dies.

Many sole practices may already have alternate arrangements in place as part of their obligations relating to the client money regulations. However, this audit regulation requirement is relatively new.

Sole practices (for example, unincorporated sole practitioners and incorporated practices with a sole director) should carefully assess the suitability of the proposed alternate. This includes their capacity and ability to act quickly, their skills, and any potential conflicts of interest.

The regulations recognise that appointing an alternate may be difficult. Firms may appoint a member from any recognised institute (for example, ICAS, ICAEW, CAI), or ACCA, rather than another registered auditor. The intention behind the regulation is to ensure continuity of service for clients and staff.

The alternate is not expected to take on the sole practitioner’s business. However, they may help manage the transition of clients to a new auditor. Even if the alternate is a responsible individual (RI) in their own firm, this doesn’t allow them to act as RI on for the sole practice.

We'll ask affected firms to confirm that arrangements are in place. The ICAS Practice Support team can provide relevant information to firms having difficulty finding a suitable alternate.

Notification of significant changes in audit clients

The Audit Regulations require firms to notify appointments to any ‘retained’ audit clients (for example, a Public Interest Entity (PIE)).

In 2025, revisions to the Audit Regulations introduced a requirement to notify ICAS of other significant changes in a firm’s audit clients. Under Regulation 3.15A, firms must notify ICAS if they are appointed to any of the below clients:

1. A non-PIE audit client listed on the UK growth markets1 (or a change that means an existing client now meets that definition).
2. A non-PIE audit client with turnover of £750 million or more, or one meets the definition of an 'Other Entity of Public Interest' (or a change that means an existing client now meets one of those definitions).
3. An audit client where the expected first-year audit fee for that entity, group, or collection of entities with the same beneficial owner or controlling party is above £25,000 and more than two times the firm’s existing highest audit fee.
4. A non-PIE audit client and its subsidiaries, or a collection of entities with the same beneficial owner or controlling party (which is not a corporate holding entity), with aggregate gross worldwide turnover greater than £750 million (or currency equivalent), where the firm has three or fewer responsible individuals.

Firms should notify ICAS of any significant changes as soon as possible, and no later than 21 days after appointment.

Firms can request a waiver from the 21-day requirement (for example, those firms expect there to be a high number of notifications). These will be considered on a case-by-case basis and would be replaced by an annual reporting requirement.

Notify ICAS about a significant change in audit clients

Reporting of Ethical Standard breaches

All audit firms must put in place appropriate policies, procedures, quality management, and monitoring systems. They must also dedicate appropriate resources and leadership to compliance with supporting ethical provision.

In practice, firms often monitor ethical compliance through their standard System of Quality Management (SoQM) arrangements. This may include the annual compliance review(s) and cold file reviews. Larger firms may need to introduce additional, dedicated processes.

Monitoring arrangements should be designed to effectively capture all relevant breaches of the Ethical Standard identified by the firm.

Whenever a firm finds a possible or actual breach of the Ethical Standard, or a firm’s policies and procedures for ethical compliance, the engagement partner (and the Ethics Partner, if there is one) will need to:

• Assess the implications of the breach.
• Determine whether there are safeguards that can be put in place or other actions that can be taken to address any potential adverse consequences.
• Consider whether there is a need to resign or withdraw from the engagement.

When making their final judgement, they must consider the perspective of an objective, reasonable and informed third party.

Once these steps are complete, firms must also make sure they meet their reporting obligations under the Ethical Standard. They must report all breaches identified through their monitoring arrangements to both:

• The Competent Authority (the FRC for PIEs, and ICAS for non-PIEs) on a biannual basis, or outside of the biannual timetable where the Competent Authority would reasonably expect notice (for example, due to the nature or seriousness of the breach, including where the firm may need to consider resigning).
• Those charged with governance of the client, in a timely manner, if a breach relates to a specific audit.

Report a breach of Ethical Standards to ICAS