Is your audit firm compliant with the UK Audit Regulations provisions impacting eligibility for UK audit registration?
Firms holding UK audit registration are reminded of the requirement to comply with certain provisions of the UK Audit Regulations by 1 April 2025. These are important provisions relevant to a firm’s eligibility for UK audit registration. As previously notified to firms, the UK Audit Regulations published in October 2024, include updates to improve alignment with the UK Companies Act 2006 and the FRC Eligibility Criteria. The definitions of ‘majority’ and ‘voting rights’ for the purposes of determining the control of an audit firm were clarified, and related guidance expanded.
Audit firms with UK registration may be affected where a ‘super-majority’ (more than 50%) is required for certain decisions of the firm to take effect. To summarise, decisions on all matters that direct the overall policy of the firm or alter its constitution need to be controlled by qualified persons. If your firm has matters in its constitution that specify a higher than simple majority (50%), then qualified persons must hold the specified ‘super-majority’ (more than 50%).
In addition, if your firm is a limited company, it must also ensure that specific matters that require special resolution approval under company legislation (i.e., by a majority of not less than 75%) are controlled by qualified persons. These matters will typically affect the firm’s constitution e.g. change of company name, amending the Articles of Association/Constitution, winding up of the firm, reduction in share capital etc. As such, firms that are limited companies will need to ensure they have sufficient qualified persons to approve any decisions that require a special resolution to be passed. A limited company firm may be able to include provisions in its Articles of Association/Constitution to deprive a certain class/type of shareholders of the right to vote in certain circumstances. The Institute advises limited company firms, with audit registration in the UK, to obtain legal advice on whether changes are needed to their Articles of Association/Constitution to ensure qualified persons hold a majority of voting rights.
The UK Audit Regulations are issued jointly by Chartered Accountants Ireland, the Institute of Chartered Accountants in England and Wales (ICAEW) and the Institute of Chartered Accountants of Scotland (ICAS). While the UK Audit Regulations were revised with effect from 1 October 2024, a transition period of 6 months was incorporated so that these particular rules take effect from 1 April 2025. This transition period allowed a period of time for firms to effect necessary governance changes. Firms are reminded of the requirement to inform the Institute promptly in relation to changes to the firm’s structure, ownership or constitution in accordance with Audit Regulation 2.11.
ICAEW has published some useful FAQs in relation to the UK Audit Regulations and eligibility criteria. The FRC issued a position paper in this regard in August 2024.
The Firms with any questions about the application of these revised definitions to their firm should contact the Institute at authorisations@charteredaccountants.ie.
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