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State Board Report

June 2016

June 17, 2016 is the date all of the European Union’s 28 member states are to have adopted and published Directive 2014/56/EU (Audit Directive) and EU Audit regulation (EU) 537/2014 (Audit Regulation) aimed at strengthening public oversight of statutory auditors and audit firms. Each member state is to designate a "competent authority" to bear the ultimate responsibility for the regulation and/or oversight of statutory auditors and audit firms. The competent authorities are to cooperate within the framework of the Committee of European Auditing Oversight Bodies (CEAOB) with a view to achieving convergence of the requirements for recognition of approval of statutory auditors from other EU member states. The CEAOB will be meeting in July.

Part of the EU legislation is a requirement for "effective systems of investigations and penalties to be in place, to detect, correct and prevent inadequate execution of the statutory audit." To that end, the United Kingdom’s competent authority, the Financial Reporting Council (FRC) is setting up a new Audit Enforcement Procedure. The FRC intends to delegate the majority of its public interest entities (PIEs) audit regulation tasks to the professional bodies in the UK. The new procedure will apply only to the enforcement cases the FRC conducts.

For inadequate execution of statutory audit, the FRC would be able to impose: notice to cease and abstain from any repetition of the breach; publication of a statement confirming the person responsible and the nature of the breach; prohibition order of up to three years’ duration from carrying out statutory audits and/or signing audit reports and/or exercising functions in audit firms or public interest entities; declaration that an audit report does not satisfy the audit reporting requirements; financial penalty; condition with an order to comply with any direction; exclusion as a member of a recognized supervisory body; and restitution including the waiver or repayment of client fees. The new FRC Audit Enforcement Procedure will replace its existing sanctions procedure and disciplinary tribunal scheme and is aimed at providing a single, streamlined procedure for audit enforcement.

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