Regulation (EU) No 537/2014 of the European Parliament and of the CouncilShow full title

CHAPTER II U.K. Quality assurance, market monitoring, and transparency of competent authorities

Article 26 U.K. Quality assurance

1. For the purposes of this Article:

(a) ‘inspections’ means quality assurance reviews of statutory auditors F1 ..., which are led by an inspector and which do not constitute an investigation within the meaning of [F2 regulation 3(1)(l) of the Statutory Auditors and Third Country Auditors Regulations 2016];

(b) ‘inspector’ means [F3 an individual] who meets the requirements set out in point (a) of the first subparagraph of paragraph 5 of this Article and who is employed or otherwise contracted by a competent authority;

(c) ‘expert’ means [F4 an individual] who has specific expertise in financial markets, [F5 accounting], auditing or other fields relevant for inspections, including practising statutory auditors.

2. The [F6 competent authority] shall establish an effective system of audit quality assurance.

They shall carry out quality assurance reviews of [F7 individuals and firms] that carry out statutory audits of public-interest entities on the basis of an analysis of the risk and:

[F8 (a) in the case of statutory auditors carrying out audits of public interest entities, other than those which, but for being public interest entities, would qualify (or would if they were companies) as small or medium-sized under sections 382 and 383 or sections 465 and 467 of the Companies Act 2006, at least every three years; and]

(b) in cases other than those referred to in point (a), at least every six years.

3. The competent authority shall have the following responsibilities:

(a) approval and amendment of the inspection methodologies, including inspection and follow-up manuals, reporting methodologies and periodic inspection programmes;

(b) approval and amendment of inspection reports and follow-up reports;

(c) approval and assignment of inspectors for each inspection.

The competent authority shall allocate adequate resources to the quality assurance system.

4. The competent authority shall organise the quality assurance system in a manner that is independent of the F9 ... statutory auditors [F10 that are the subject of the inspection].

The competent authority shall ensure that appropriate policies and procedures related to the independence and objectivity of the staff, including inspectors, and the management of the quality assurance system are put in place.

5. The competent authority shall comply with the following criteria when appointing inspectors:

(a) inspectors shall have appropriate professional education and relevant experience in statutory audit and [F11 accounting] combined with specific training on quality assurance reviews;

(b) a person who is a practising statutory auditor or is employed by or otherwise associated with a statutory auditor F12 ... shall not be allowed to act as an inspector;

(c) a person shall not be allowed to act as an inspector in an inspection of a statutory auditor F13 ... until at least three years have elapsed since that person ceased to be a partner or employee of that statutory auditor F14 ... or to be otherwise associated with that statutory auditor F15 ...;

(d) inspectors shall declare that there are no conflicts of interest between them and the statutory auditor F16 ... to be inspected.

By way of derogation from point (b) of paragraph 1, [F17 the competent authority] may contract experts for carrying out specific inspections when the number of inspectors within the authority is insufficient. The competent authority may also be assisted by experts when this is essential for the proper conduct of an inspection. In such instances, [F18 the competent authority] and the experts shall comply with the requirements of this paragraph. Experts shall not be involved in the governance of, or employed or otherwise contracted by professional associations and bodies but may be members of such associations or bodies.

[F19 5A. In point (a) of the first subparagraph of paragraph (5), “relevant experience” means having experience of—

(a) statutory audit work;

(b) equivalent work, for the purposes of an appointment of a person to conduct inspections made prior to IP completion day, on the audit of accounts under the law of an EEA State, or part of an EEA State, or Gibraltar; or

(c) equivalent work, for the purposes of an appointment of a person to conduct inspections, on the audit of accounts under the law of—

(i) an equivalent third country, or part of an equivalent third country; or

(ii) a transitional third country, or part of a transitional third country.]

6. The scope of inspections shall at least cover:

(a) an assessment of the design of the internal quality control system of the statutory auditor F20 ...;

(b) adequate compliance testing of procedures and a review of audit files of public-interest entities in order to verify the effectiveness of the internal quality control system;

(c) in the light of the findings of the inspection under points (a) and (b) of this paragraph, an assessment of the contents of the most recent annual transparency report published by a statutory auditor F21 ... in accordance with Article 13.

7. At least the following internal quality control policies and procedures of the statutory auditor F22 ... shall be reviewed:

(a) compliance by the statutory auditor F23 ... with applicable auditing and quality control standards, and ethical and independence requirements, including [F24 the relevant standards listed in regulation 4(2) of the Statutory Auditors and Third Country Auditors Regulations 2016] and Articles 4 and 5 of this Regulation F25 ...;

(b) the quantity and quality of resources used, including compliance with continuing education requirements as set out in [F26 paragraph 11 of Schedule 10 to the Companies Act 2006];

(c) compliance with the requirements set out in Article 4 of this Regulation on the audit fees charged.

For the purposes of testing compliance, audit files shall be selected on the basis of an analysis of the risk of a failure to carry out a statutory audit adequately.

[F27 The competent authority] shall also periodically review the methodologies used by statutory auditors F28 ... to carry out statutory audits.

In addition to the inspection covered by the first subparagraph, [F29 the competent authority] shall have the power to perform other inspections.

8. The findings and conclusions of inspections on which recommendations are based, including the findings and conclusions related to a transparency report, shall be communicated to and discussed with the inspected statutory auditor F30 ... before an inspection report is finalised.

Recommendations of inspections shall be implemented by the inspected statutory auditor F31 ... within a reasonable period set by the competent authority. Such period shall not exceed 12 months in the case of recommendations on the internal quality control system of the statutory auditor F32 ....

9. The inspection shall be the subject of a report which shall contain the main conclusions and recommendations of the quality assurance review.

Textual Amendments

F1 Words in Art. 26(1)(a) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(a)(i)(aa); 2020 c. 1, Sch. 5 para. 1(1)

F2 Words in Art. 26(1)(a) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(a)(i)(bb); 2020 c. 1, Sch. 5 para. 1(1)

F3 Words in Art. 26(1)(b) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(a)(ii); 2020 c. 1, Sch. 5 para. 1(1)

F4 Words in Art. 26(1)(c) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(a)(iii)(aa); 2020 c. 1, Sch. 5 para. 1(1)

F5 Word in Art. 26(1)(c) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(a)(iii)(bb); 2020 c. 1, Sch. 5 para. 1(1)

F6 Words in Art. 26(2) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(b)(i); 2020 c. 1, Sch. 5 para. 1(1)

F7 Words in Art. 26(2) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(b)(ii)(aa); 2020 c. 1, Sch. 5 para. 1(1)

F8 Art. 26(2)(a) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(b)(ii)(bb) (as amended by S.I. 2019/1392, regs. 1(2), 8); 2020 c. 1, Sch. 5 para. 1(1)

F9 Word in Art. 26(4) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(c)(i); 2020 c. 1, Sch. 5 para. 1(1)

F10 Words in Art. 26(4) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(c)(ii); 2020 c. 1, Sch. 5 para. 1(1)

F11 Word in Art. 26(5)(a) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(d)(i); 2020 c. 1, Sch. 5 para. 1(1)

F12 Words in Art. 26(5)(b) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(d)(ii); 2020 c. 1, Sch. 5 para. 1(1)

F13 Words in Art. 26(5)(c) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(d)(iii)(aa); 2020 c. 1, Sch. 5 para. 1(1)

F14 Words in Art. 26(5)(c) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(d)(iii)(bb); 2020 c. 1, Sch. 5 para. 1(1)

F15 Words in Art. 26(5)(c) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(d)(iii)(cc); 2020 c. 1, Sch. 5 para. 1(1)

F16 Words in Art. 26(5)(d) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(d)(iv); 2020 c. 1, Sch. 5 para. 1(1)

F17 Words in Art. 26(5) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(e)(i); 2020 c. 1, Sch. 5 para. 1(1)

F18 Words in Art. 26(5) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(e)(ii); 2020 c. 1, Sch. 5 para. 1(1)

F19 Art. 26(5A) inserted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(f) (as amended by S.I. 2020/523, regs. 1(2), 16); 2020 c. 1, Sch. 5 para. 1(1)

F20 Words in Art. 26(6)(a) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(g)(i); 2020 c. 1, Sch. 5 para. 1(1)

F21 Words in Art. 26(6)(c) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(g)(ii); 2020 c. 1, Sch. 5 para. 1(1)

F22 Words in Art. 26(7) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(h)(i); 2020 c. 1, Sch. 5 para. 1(1)

F23 Words in Art. 26(7)(a) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(h)(ii)(aa); 2020 c. 1, Sch. 5 para. 1(1)

F24 Words in Art. 26(7)(a) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(h)(ii)(bb); 2020 c. 1, Sch. 5 para. 1(1)

F25 Words in Art. 26(7)(a) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(h)(ii)(cc); 2020 c. 1, Sch. 5 para. 1(1)

F26 Words in Art. 26(7)(b) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(h)(iii); 2020 c. 1, Sch. 5 para. 1(1)

F27 Words in Art. 26(7) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(i)(i); 2020 c. 1, Sch. 5 para. 1(1)

F28 Words in Art. 26(7) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(i)(ii); 2020 c. 1, Sch. 5 para. 1(1)

F29 Words in Art. 26(7) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(j); 2020 c. 1, Sch. 5 para. 1(1)

F30 Words in Art. 26(8) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(k)(i); 2020 c. 1, Sch. 5 para. 1(1)

F31 Words in Art. 26(8) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(k)(ii)(aa); 2020 c. 1, Sch. 5 para. 1(1)

F32 Words in Art. 26(8) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 100(k)(ii)(bb); 2020 c. 1, Sch. 5 para. 1(1)

Article 27 U.K. Monitoring market quality and competition

1. The [F33 competent authority] shall regularly monitor the developments in the market for providing statutory audit services to public-interest entities and shall in particular assess the following:

(a) the risks arising from high incidence of quality deficiencies of a statutory auditor F34 ..., including systematic deficiencies within [F35 a network], which may lead to the demise of [F36 any firm in the network], the disruption in the provision of statutory audit services whether in a specific sector or across sectors, the further accumulation of risk of audit deficiencies and the impact on the overall stability of the financial sector;

(b) the market concentration levels, including in specific sectors;

(c) the performance of audit committees;

(d) the need to adopt measures to mitigate the risks referred to in point (a).

2. By [F37 17 June 2019], and at least every three years thereafter, [F38 the competent authority] F39 ... shall draw up a report on developments in the market for providing statutory audit services to public-interest entities and submit it to the [F40 Secretary of State].

F41 ...

Textual Amendments

F33 Words in Art. 27(1) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 101(a)(i); 2020 c. 1, Sch. 5 para. 1(1)

F34 Words in Art. 27(1)(a) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 101(a)(ii)(aa); 2020 c. 1, Sch. 5 para. 1(1)

F35 Words in Art. 27(1)(a) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 101(a)(ii)(bb); 2020 c. 1, Sch. 5 para. 1(1)

F36 Words in Art. 27(1)(a) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 101(a)(ii)(cc); 2020 c. 1, Sch. 5 para. 1(1)

F37 Words in Art. 27(2) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 101(b)(i)(aa); 2020 c. 1, Sch. 5 para. 1(1)

F38 Words in Art. 27(2) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 101(b)(i)(bb); 2020 c. 1, Sch. 5 para. 1(1)

F39 Words in Art. 27(2) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 101(b)(i)(cc); 2020 c. 1, Sch. 5 para. 1(1)

F40 Words in Art. 27(2) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 101(b)(i)(dd); 2020 c. 1, Sch. 5 para. 1(1)

F41 Words in Art. 27(2) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 101(b)(ii); 2020 c. 1, Sch. 5 para. 1(1)

Article 28 U.K. Transparency of [F42 competent authority]

[F43 The competent authority] shall be transparent and shall at least publish:

(a)

annual activity reports regarding [F44 the competent authority's tasks];

(b)

annual work programmes regarding [F45 the competent authority's tasks];

(c)

a report on the overall results of the quality assurance system on an annual basis. This report shall include information on recommendations issued, follow-up on the recommendations, supervisory measures taken and sanctions imposed. It shall also include quantitative information and other key performance information on financial resources and staffing, and the efficiency and effectiveness of the quality assurance system;

(d)

the aggregated information on the findings and conclusions of inspections referred to in the first subparagraph of Article 26(8). F46 ...

Textual Amendments

F42 Words in Art. 28 heading substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 102(a); 2020 c. 1, Sch. 5 para. 1(1)

F43 Words in Art. 28 substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 102(b); 2020 c. 1, Sch. 5 para. 1(1)

F44 Words in Art. 28(a) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 102(c); 2020 c. 1, Sch. 5 para. 1(1)

F45 Words in Art. 28(b) substituted (31.12.2020) by The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 102(c); 2020 c. 1, Sch. 5 para. 1(1)

F46 Words in Art. 28(d) omitted (31.12.2020) by virtue of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/177), regs. 2, 102(d); 2020 c. 1, Sch. 5 para. 1(1)