Reparis Distance Learning Event Public Oversight 19 April 2011

1. Reparis Distance Learning EventPublic Oversight19 April 2011 John Grewe Project Manager Professional Oversight Board United Kingdom

2. What I will cover • Legal Basis of Public Oversight • Functions and responsibilities of POB • Board Members, staffing and funding of POB • How UK Professional Oversight Board fits into the UK regulatory framework Reparis Distance Learning 19 April 2011

3. Legal Basis of Public Oversight in the United Kingdom • UK Companies Act sets out the framework for the regulation of statutory auditors ( but no statutory regulation of accountants) • Current structure set up in 2003/04 post Enron • In UK no need to “reinvent the wheel” when Statutory Audit Directive adopted in 2006 • Law gives powers and responsibilities to Government, which are delegated to POB • Likely to be changes as part of review of structure of FRC, of which POB a part. Reparis Distance Learning 19 April 2011

4. UK Audit Regulatory framework UK has Mixed Model: • Most day to day regulation of auditors is the responsibility of UK professional accountancy bodies - • POB responsible for recognising bodies and for overseeing their direct regulation of auditors. • POB also responsible through AIU for direct inspection of auditors of PIEs. Another FRC body responsible for discipline in cases of major public interest Reparis Distance Learning 19 April 2011

5. Implementation of Statutory Audit Directive (1) Direct Regulation by Recognised Professional Bodies: (i) Qualification of auditors (ii) Registration of Auditors (iii) System of Quality Assurance (Non PIEs) (iv) Regulatory action (v) Investigation and Discipline (Not major public interest cases) Reparis Distance Learning 19 April 2011

6. Implementation of Statutory Audit Directive (2) Direct Regulation by POB and other parts of FRC: (i) Quality Assurance Reviews in respect of “major audits” (Audit Inspection Unit) (ii) Investigation and Discipline of Audits in major public interest cases (Accounting and Actuarial Discipline Board) (iii) Setting auditing and ethical standards (Auditing Practices Board) Reparis Distance Learning 19 April 2011

7. Financial Reporting Council , UK FRC APB AUDITING STANDARD SETTING POB PROFESSIONAL OVERSIGHT BOARD FRRP FINANCIAL REPORTING REVIEW PANEL ASB ACCOUNTING STANDARDS BOARD AADB ACCOUNTANCY & ACTUARIAL DISCIPLINE AIU AUDIT INSPECTION UNIT Professional Bodies Independent audit regulators Auditors Non Public Interest Auditors Public Interest Professional body regulators Reparis Distance Learning 19 April 2011

8. Oversight BoardAppointment of Board Members • Appointed by FRC Nominations Committee • Transparent Process • No members are nominated by external organisations • Mix of skills and experience • Maximum of 13 Members • No one can be a practising auditor • Only a minority can previously have been practising auditors in last five years. • Maximum of 2 three year terms. Reparis Distance Learning 19 April 2011

9. Oversight BoardCurrent Membership • Chair - ex Director of Public Prosecutions • Director – was auditor over ten years ago. • 2 members: recently retired “Big 4” auditors • 1 accountancy academic • 1 consumer advocate in finance field • 2 with banking/investment backgrounds • 1 former CEO of Health Board • 1 actuary • 1 in insurance sector Reparis Distance Learning 19 April 2011

10. Oversight BoardFunding • Originally 1/3 Government, 1/3 accountancy profession and 1/3 listed companies (via FRC) • Government withdrawing funding • Most funding will be from accountancy bodies and from listed and large private companies • Powers for a statutory levy not used so far • Audit Inspection Unit funded separately by audit firms – through the professional bodies Reparis Distance Learning 19 April 2011

11. How POB relates to wider UK Regulatory framework European Union UK Government Insolvency service Pensions regulator Public sector accounting and audit FSA POB/FRC Stock Exchanges (LSE, AIM) Professional Bodies Banks Insurers Financial advisers Listed companies Bonds etc 10,000 Auditors 270,000 Accountants Reparis Distance Learning 19 April 2011