Fr And AO Regulation

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Jon HooperHead of Communications and

International RelationsUK Financial Reporting Council

Regulation of Financial Reporting and Auditing

– an international perspective

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What I will coverWhat I will cover What Financial Reporting and Auditing Regulation is International regulatory models and organisations US Case German case UK Case Questions and Discussion

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What is FR and A regulation?What is FR and A regulation?

Setting rules for financial reporting by companies

Enforcing those rules

Setting rules for the auditing of companies’ financial information

Enforcing those rules

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International models of FR and International models of FR and A regulationA regulation

Directly by government only

Government and agency

Government and professional body

Government, agency and professional body (preferred by 8th Directive) – Best Practice?

FR and A – unified or separate regulation

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International organisationsInternational organisations

FR - IASB, NSS, WSS, IOSCO, BCBS, IAIS, FSB, EC, EFRAG, CESR

A - IFIAR, IOSCO, EGAOB

IFAC – IAASB, IESBA, IAESB

FEE

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US Case - Overall regulatory US Case - Overall regulatory frameworkframework

Financial Reporting for listed companies regulated by SEC

FR standards set by FASB, enforced by SEC

Auditing standards set and enforced by PCAOB

FR and A for non-listed companies regulated by state law

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German Case - Overall German Case - Overall regulatory frameworkregulatory framework

FR standards for listed companies set by IASB, enforced by Financial Reporting Enforcement Panel

FR standards for non-listed set by various sources – law, common practice etc. Not enforced in practice

Auditing standards set by professional body (IDW)

Auditing standards enforced by Chamber of Auditors, overseen by APAK/AOC

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UK Case - Overall regulatory UK Case - Overall regulatory frameworkframework

FR standards for listed companies set by IASB, enforced by FRC (FRRP)

FR standards for non-listed set by FRC (ASB)

Auditing standards set by FRC (ISA+)Auditing standards enforced by FRC for

audits of listed companies, professional bodies for other audits

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UK Case – In more detailUK Case – In more detail

FR and A are regulated by EU Company Law Directives – 4th, 7th and 8th

UK Companies Act (CA) implements the EU requirements

CA sets out financial reporting requirements for all companies and regulates statutory auditors – it does not regulate accountants!

Financial Reporting Council regulates financial reporting by companies

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UK Case - Regulatory frameworkUK Case - Regulatory framework

UK GovernmentUK Government

Insolvency service

Pensions regulator

Public sector accounting and audit (e.g. NAO)

FSAFSA

Professional BodiesProfessional Bodies

ICAEW, ACCA, ICAS, ICAI, ICAEW, ACCA, ICAS, ICAI, CIMA, CIPFACIMA, CIPFA

10,000 Auditors

FRCFRC

270,000 Accountants

Stock Stock Exchanges Exchanges (LSE, AIM)(LSE, AIM)

BanksInsurersFinancial advisers

Listed companiesBonds etc

European UnionEuropean Union

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UK Case - Financial Reporting UK Case - Financial Reporting Council , UKCouncil , UK

FRCFRC

AIU AUDIT

INSPECTION UNIT

AADB ACCOUNTANCY &

ACTUARIAL DISCIPLINE

APB AUDITING

STANDARD SETTING

ASBASBACCOUNTING ACCOUNTING STANDARDS STANDARDS

BOARDBOARD

POBPROFESSIONAL

OVERSIGHT BOARD

FRRPFRRPFINANCIAL FINANCIAL

REPORTING REPORTING REVIEW PANELREVIEW PANEL

Professional BodiesProfessional Bodies

Independent audit

regulators

Professional body regulators

Auditors Public Interest

Auditors Non Public Interest

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UK Case - FRC FundingUK Case - FRC Funding

FRC is funded from three sources:

professional accounting bodies

listed companies via FSA

government budget (reducing)

FRC sets its own strategy and work plan that is reviewed by the FRC Board.

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UK Professional Organisations UK Professional Organisations of Auditors and Accountantsof Auditors and Accountants

Institute of Chartered Accountants in England & Wales – 111,000 UK members

Association of Chartered Certified Accountants – 61,000Institute of Chartered Accountants of Ireland – 14,000

Institute of Chartered Accountants of Scotland – 15,000Chartered Institute of Management Accountants – 56,000Chartered Institute of Public Finance and Accounting –

13,000

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Professional OrganisationsProfessional OrganisationsInvolvement in Audit Regulation Involvement in Audit Regulation

Still responsible for: Education and training of auditors Registration of auditors – firms and individuals Inspection of audit firms - but not auditors of

“public interest entities” Investigation and disciplining of auditors – but

not cases which raise serious public interest issues