In an effort to improve auditor independence, the Financial Reporting Council, the United Kingdom’s audit regulator, announced new independence standards, which commenced in March 2020. These changes now prohibit audit firms from providing non-assurance services (e.g., advisory, tax compliance, etc.) to their audit clients. For U.K. companies with offices and subsidiaries located in a Canadian jurisdiction, these new ethical standards may necessitate some changes in service providers.
What is the regulation?
The U.K. audit independence rules are the result of concerns that U.K. (and European Union) regulators expressed around ethics and independence. Regulatory bodies increasingly worry that audit firms are potentially losing their independence from audit clients due to lucrative fees earned from providing non-assurance services.
The impetus in the U.K. is the public and political uproar following some notable corporate failures in recent years, including Thomas Cook in 2019, wherein over 150,000 British travellers were left stranded around the world after the vacation company declared bankruptcy.
What does this mean for your business?
For U.K. firms with offices and subsidiaries in Canada, the changes essentially mean that the service provider that performs the audit services can perform only audit services. All other accounting and consulting needs such as advisory and tax compliance must be performed by a different firm. Depending on the company’s individual situation, this may require a change of service provider in Canada.
How we can help
There continues to be an evolution of the regulatory environment in the U.K., and these changes could be highly disruptive to your business. However, RSM offers a wide range of services in addition to audit, including non-compliance tax services, actuarial support, digital transformation and M&A advisory. Through a breadth of resources in Canada and the United States, as well as a global focus on the middle market, RSM is well positioned to help your business through this transition and beyond.
The new requirements have been in place since March 2020, so it is in the best interest of your company to act as soon as possible if you have a potential conflict. Contact us to learn more about how we can help support your tax and consulting needs.