Changes to the Audit Regulations – Maintaining competence
On 1 October, revised Audit Regulations were published on ICAS.com. There have been several amendments made, and firms should ensure that the revised regulations are reviewed and adhered to going forward. This article covers the changes relating to maintaining competence.
Changes to the Audit Regulations
On 1 October, revised Audit Regulations were published on ICAS.com. There have been several amendments made, and firms should ensure that the revised regulations are reviewed and adhered to going forward. While there have been various changes made, revisions to the following three areas are considered to have the most significant effect on our audit firms:
- Audit eligibility;
- Maintaining competence / Continuing Professional Development; and
- Audit compliance review.
Changes to the regulations relating to maintaining competence
Audit Regulation 3.17 – Maintaining Competence (which is seen to relate to a firm’s overall processes for training and ongoing development) has been expanded to set out to more clearly cross refer to Audit Regulation 3.17A (which relates more directly to the requirement for each RI to maintain competence), and to clarify the importance of retaining evidence of training / CPD undertaken.
Maintaining competence
The additional references now included are shown in bold below
3.17 – “A Registered Auditor must make arrangements so that all principals and employees doing audit work are, and continue to be, competent to carry out the audits for which they are responsible or employed. The Registered Auditor’s arrangements in this regard facilitate compliance with regulation 3.17A by the responsible individuals. A Registered Auditor must make arrangements for the retention of the records of continuing professional development (‘CPD’) undertaken by principals and employees engaged in audit work including the CPD undertaken by responsible individuals to comply with regulation 3.17A. A Registered Auditor must ensure that CPD records are made available to the registering Institute for inspection and review when requested.”
Audit Regulation 3.17A has also been amended and expanded to clarify requirements on an RI level, and to more clearly refer to the learning outcomes in Table A of International Education Standard 8 (IES8), which sets out the core competencies that all RIs are required to develop and maintain.
FROM: 3.17A – “A responsible individual must take part in appropriate programmes of continuing education in order to maintain their theoretical knowledge, professional skills and values, including, in particular, in relation to auditing, with content that is relevant to their role and responsibilities.”
TO: 3.17A “A Responsible individual is required to:
(a)take part in appropriate programmes of continuing education in order to maintain their theoretical knowledge, professional skills and values, in relation to auditing, at a sufficiently high level. A responsible individual must undertake CPD to:
- achieve the learning outcomes in Table A of IES 8; and
- maintain professional knowledge in (i) the UK auditing framework and (ii) financial reporting standards in use in the UK relevant to the preparation of financial statements and to statutory audit;
(b) ensure that appropriate records are retained to demonstrate compliance with the responsible individual’s CPD obligations.”
While the underlying requirements are nothing new, ICAS Audit Monitoring regularly finds that firms (in considering a firm-wide approach to CPD) and RIs (in considering their own approach) have not explicitly considered IES8 as part of the CPD process. There is also a correlation between non-compliance with Audit Regulation 3.17 & 3.17A and poor audit quality. Firms should ensure that sufficient appropriate CPD is conducted by all auditors, and that RIs are explicitly considering the requirements of IES 8 when planning, conducting and recording CPD. To aid in the latter, worked examples of a CPD record for an experienced RI are available on ICAS.com for reference.
Audit monitoring findings
Looking back at 2023, the monitoring team found breaches against Audit Regulation 3.17 and/or 3.17A on 16% of visits, resulting from weaknesses in a firm or RIs arrangements for training and continuing professional development (CPD). While this was in a relatively small proportion of visits, it should be recognised that breaches of these regulations are often closely linked to other significant, or widespread, issues with audit quality or compliance:
Half of these visits related to cases where insufficient or ineffective CPD was considered to have been an underlying factor in poor audit quality (where the RIs files were found to require significant improvement).
The other half of the cases related to instances where RI’s CPD records were poor, and did not demonstrate sufficient consideration of the requirements of IES8.
