United Kingdom

The United Kingdom’s (UK) Companies Act of 2006 and other relevant legislation establish the legal requirements for the formation and operation of companies and other commercial entities in the UK, including the requirements for accounting, auditing, and financial reporting.

Key pieces of legislation that establish the accounting framework for companies and other commercial entities in the UK are:

• the Companies Act 2006;
• the Small Companies and Groups (Accounts and Directors’ Reports) Regulation 2008;
• the Small Companies (Micro-Entities’ Accounts) Regulations 2013;
• the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulation 2008;
• the Partnerships (Accounts) Regulations 2008;
• the Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012; and
• the Co-operative and Community Benefit Societies Act 2014.

The Financial Reporting Council (FRC) is authorized to issue accounting and auditing standards in the UK in accordance with the Statutory Instrument on Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc.) Order 2012 (SI 2012/1741).

The FRC took over the role of accounting standard-setter from the Accounting Standards Board in 2012. The UK has moved away from locally developed financial reporting standards towards internationally developed standards, but only some preparers apply these directly. EU-endorsed IFRS are required to be applied in consolidated financial statements of parent companies with securities that are traded on a regulated market. Other entities apply ‘reduced disclosure’ EU adopted IFRS, or Financial Reporting Standards (FRS) developed by the FRC, depending on the size, type of company, and the nature of activities that is conducted. FRS are based on the IFRS for SMEs, with significant modifications.

The Companies Act of 2006 establishes mandatory audit requirements (statutory audits) for all companies unless they qualify for exemptions based primarily on size, nature of activity and company type, or whether they are dormant. Audit exemptions are available for small companies or groups of companies that are not public companies or engaged in the provision of financial services and meet qualifying criteria. All financial statement audits must be conducted in accordance with International Standards on Auditing (UK) issued by the FRC. ISAs (UK) are based on ISAs issued by the IAASB, with some additions to account for UK Company law.

Statutory frameworks for accounting and audit are also in place for preparers which are not companies or commercial entities. These include various types of public sector entities and not-for-profit entities. The frameworks are embodied in various legislation for central government, local government, health sector bodies and the devolved administration governments in Wales, Scotland and Northern Ireland. Statutory requirements for charities, housing associations and other public benefit entities are determined for England and Wales (together), Scotland, and Northern Ireland.

Public sector entities are required by statute to follow UK GAAP, which is interpreted to mean EU adopted IFRS, adapted as necessary for the public sector context. This ‘adaptation’ process is administered through sector-specific manuals and subject to review by the independent Financial Reporting Advisory Board. Not-for-profit public benefit entities above certain size thresholds also follow UK GAAP in the form of FRS 102, the FRS applicable in the United Kingdom and the Republic of Ireland, together with sector-specific guidance in Statements of Recommended Practice (SORPs).

Public sector entities are also subject to statutory audit (sometimes referred to as ‘public audit’) either by public sector audit agencies (the National Audit Office, Wales Audit Office, Audit Scotland and the Northern Ireland Audit Office) or by audit firms. Not-for-profit public benefit entities above certain size thresholds are also subject to requirements for audit. Audits in both public sector and not-for-profit sectors are required to be conducted using ISAs (UK), together with sector-specific practice notes.

The Companies Act of 2006 and the Third Country Auditors Regulation of 2007 govern the regulation of the accountancy profession in the UK.

The Financial Reporting Council (FRC) is authorized by the Companies Act of 2006 to oversee the profession. The Statutory Auditors and Third Country Auditors Regulations 2016 (SI 2016/649) establishes the authority of the FRC as ultimate competent authority to exercise independent oversight of the regulation of statutory auditors, and to delegate oversight to selected professional accountancy organizations, Recognized Supervisory Bodies (RSBs), and Recognized Qualifying Bodies (RQBs). Audit firms are required to be registered and subject to supervision by an RSB. Statutory auditors must hold a recognized qualification issued by an RQB. Auditors that carry out audit work on public interest entities (PIEs), which include listed entities, credit institutions, and insurance companies, are subject to the direct oversight of the FRC.

The Local Audit (Delegation of Functions) and Statutory Audit (Delegation of Functions) Order 2014 (SI 2014/2009) has the effect of applying some of these requirements to the audits of local public bodies in England.

The FRC maintains oversight of statutory audits through: (i) the recognition and de-recognition of RSBs and RQBs; (ii) issuance of enforcement orders on RSBs or RQBs that fail to meet statutory audit requirements; and (iii) the imposition of financial fines on RSBs and RQBs that do not comply with their statutory obligations.

RQBs must have effective arrangements in place to ensure that their qualifications for auditors meet statutory requirements, while RSBs are required to have appropriate arrangements for registering, monitoring, and disciplining auditors. RSBs are also responsible for ensuring that members who are statutory auditors maintain appropriate levels of competency through continuing professional development (CPD). To conduct statutory audits, members of RSBs must have a current audit-practicing certificate issued by the RSB, and auditors and audit firms are prohibited from conducting statutory audits unless they are registered with an RSB. The registration information for auditors and audit firms that want to be registered with RSBs is published in a centralized Register of Statutory Auditors.

The four RSBs are: Association of Chartered Certified Accountants (ACCA); the Chartered Accountants of Ireland (CAI); the Institute of Chartered Accountants in England and Wales (ICAEW); and the Institute of Chartered Accountants of Scotland (ICAS).

The RQBs are: ACCA; the Association—CIMA; the CAI; the ICAEW; and the ICAS. The Chartered Institute of Public Finance and Accountancy (CIPFA) status as an RQB applies only in respect of the audit of local public bodies in England.

RSBs in the UK are Recognized Accountancy Bodies (RABs) in Ireland, and audits conducted in Ireland are subject to oversight by the Irish Auditing and Accounting Supervisory Authority (IAASA). Both the FRC and IAASA maintain separate, independent monitoring, and investigation and discipline (I&D) arrangements for audits of major public interest entities.

By agreement with the six chartered accountancy bodies (ACCA, CAI, CIPFA, ICAEW, ICAS, and The Association—CIMA), the FRC has a non-statutory role for overseeing the professional organizations’ regulation of their members beyond those that are statutory auditors. The FRC's work to oversee the regulation of statutory auditors is relevant also to the oversight of the accountants more generally, as the regulatory systems often apply to both. In addition, the FRC may review professional organizations’ regulation, for example: education, training, CPD, ethical matters, professional conduct and discipline, registration and monitoring, including making recommendations on how these activities might be improved.

Professional Accountants in Business (PAIBs)—which include technicians, management accountants, and public sector accountants—are not regulated by law or regulation. The PAIBs that voluntarily become members of one of the PAOs are subject to its educational and ethical requirements as well as its I&D systems.

The Statutory Auditors and Third-Party Auditors Regulations 2016 (SI 2016/649) establishes the delegated authority of the Financial Reporting Council (FRC) to exercise and delegate independent oversight of the regulation of statutory auditors to selected public accountancy organizations, Recognized Supervisory Bodies (RSBs) and Recognized Qualifying Bodies (RQBs). Audit firms are required to be registered and subject to supervision by an RSB and statutory auditors must hold a recognized qualification issued by an RQB. The FRC maintains oversight of statutory audits through: (i) the recognition and de-recognition of RSBs and RQBs; (ii) supervision of education and certification arrangements of the RQBs; (iii) issuance of mandatory ethical and auditing standards for the conduct of audits; (iv) supervision of investigation and discipline systems established by RSBs; (v) issuance of enforcement orders on RSBs or RQBs that fail to meet statutory audit requirements; and (vi) the imposition of financial fines on RSBs and RQBs that do not comply with their statutory obligations. The FRC also oversees the regulation of professional accountants who do not conduct statutory audits to the extent that the regulatory systems in place often apply to them.

The FRC’s Audit Quality Review Team directly monitors the audits of major public interest entities (PIEs), and the Accountancy and Actuarial Discipline Board disciplines statutory auditors in cases that involve these significant PIEs.

The FRC is a member of the International Forum of Independent Audit Regulators.

The Association of Accounting Technicians (AAT)

AAT, established in 1980, is a voluntary membership organization that offers skills-based (vocational) accountancy and finance qualifications. The four sponsoring bodies (CIPFA, ICAEW, The Association—CIMA, and ICAS) offer AAT members a progression route into their respective professional qualifications. AAT regulates its members and ensures that they comply with ethical requirements and is responsible for the investigation and discipline of their members. The AAT is an IFAC member.

Association of Chartered Certified Accountants (ACCA)

ACCA is a professional membership body for chartered certified accountants. It was first established in 1904 and granted a Royal Charter in 1974. ACCA works in the public interest to ensure that its members are appropriately regulated via principles-based regulation and aims to develop capacity in the profession and encourage the adoption of global standards.

ACCA is an RQB and RSB in accordance with the UK Companies Act 2006 and also a PAB and RAB under the Companies Act 2003 in Ireland. In addition to the ACCA qualification, ACCA offers the Certificate in International Financial Reporting (Cert IFR); Diploma in International Financial Reporting (DipIFR); Certificate in International Auditing (Cert IA); Certificate in International Public Sector Accounting Standards (Cert IPSAS); and a Certificate in Business Valuations.

In addition to being a member of IFAC, ACCA is member of the ASEAN Federation of Accountants, the Confederation of Asian and Pacific Accountants, Accountancy Europe, the Institute of Chartered Accountants of the Caribbean, the Pan African Federation of Accountants and the Consultative Committee of Accountancy Bodies (CCAB).

The Association of International Accountants (AIA)

AIA, which was established in 1928 and has voluntary membership, is a Recognized Qualifying Body (RQB) under the UK’s Companies Act 2006 and a Prescribed Accountancy Body (PAB) under the Companies Act 2003 in Ireland. The AIA is not an IFAC Member.

The Association of International Certified Professional Accountants—(Association—CIMA)

The Association combines the strengths of the American Institute of CPAs (AICPA) and the Association—CIMA. It represents 657,000 members and students in public and management accounting and advocates for the public interest and business sustainability on current and emerging issues. With broad reach, rigor and resources, the Association advances the reputation, employability and quality of CPAs, CGMA designation holders and accounting and finance professionals globally. The Association—CIMA is not a Recognized Supervisory Body (RSB) or RQB and, therefore, its members are not authorized to conduct statutory audits unless they are registered with an RSB. The Association—CIMA is a PAB in Ireland under the Irish Companies Act (2003). In addition to being a member of IFAC, the Association is a member of Accountancy Europe and the CCAB—Ireland.

The Chartered Accountants of Ireland (CAI)

CAI was established by Royal Charter in 1888 and is a voluntary membership organization. The CAI’s stated mandate is to educate, represent, and support its members. In accordance with the Companies Act (1990) in Ireland, the CAI is a PAB and a Recognized Accountancy Body (RAB). The institute is also an RQB and RSB in the UK. In addition to being a member of IFAC, the CAI is a member of the Accountancy Europe, CCAB, and CCAB—Ireland.

The Chartered Institute of Public Finance and Accountancy (CIPFA)

CIPFA is a voluntary membership organization established in 1885. It is the only professional accountancy body in the UK that specializes in public services and aims to advance public finance and best practices. CIPFA works with the accountancy profession and governments around the world to promote and support the implementation of international public sector accounting standards. The institute provides education and training for professional accountants and offers a range of high-quality advisory, information, and consultancy services to public sector organizations. In addition to being a member of IFAC, CIPFA is also a member of Accountancy Europe.

The Institute of Chartered Accountants of England Wales (ICAEW)

ICAEW is a voluntary membership organization of chartered accountants. It received a Royal Charter in 1880, which conferred the right for its members to use the title “Chartered Accountant.” ICAEW’s objectives, as set out in its Royal Charter, are to: advance the theory and practice of accountancy, finance, business and commerce; recruit, educate and train a body of members skilled in accountancy and finance; preserve at all times the professional independence of accountants; maintain high standards of practice and professional conduct by all members; and, advance the profession of accountancy. It is an RQB and RSB in accordance with the UK Companies Act 2006. It is also a PAB and RAB under the Companies Act 2003 in Ireland). In addition to being a member of IFAC, ICAEW is a member of Accountancy Europe, ASEAN Federation of Accountants, CCAB, Confederation of Asia Pacific Accountants, the Pan African Federation of Accountants and Chartered Accountants Worldwide.

The Institute of Chartered Accountants of Scotland (ICAS)

ICAS is a voluntary membership organization for chartered accountants that was created by Royal Charter in 1854. ICAS has members in the UK and more than 100 countries around the world. ICAS is an educator, examiner, regulator, and thought leader. It regulates its members and their firms and is a RQB and RSB in accordance with the UK Companies Act 2006. It is also a PAB and RAB under the Companies Act 2003 in Ireland. In addition to being a member of IFAC, ICAS is a member of the Accountancy Europe and CCAB.

The Institute of Financial Accountants (IFA)

IFA is a voluntary membership organization established in 1916. Its members work for small and medium-sized enterprises (SMEs), or who run or work in small and medium-sized accounting practices that advise SMEs. IFA members in practice offer other accountancy, taxation and consultancy services to the public. The IFA is an IFAC Member.

There have been several recent developments in the UK auditing environment. These include Sir John Kingman’s review of the FRC; the Competition and Market Authority’s review of the statutory audit market; and the Brydon Review of the Future of Audit.

The Financial Reporting Council (FRC) and the four Recognized Supervisory Bodies (RSBs) in the UK (ACCA, CAI, ICAEW, and ICAS) share responsibility for the quality assurance (QA) review system governing audits and assurance engagements in accordance with the Companies Act of 2006 and the Statutory Auditors and Third-Party Auditors Regulations 2016 (SI 2016/649).

The FRC carries out the QA reviews of major public interest entities (PIEs) through the Audit Quality Review (AQR) team. The AQR team directly reviews the largest nine audit firms that carry out more than 10 audits within the scope of PIEs: the largest six audit firms annually and the other major firms every three years. RSBs perform the reviews of firms with 10 or fewer audits of PIEs and all other statutory audits. From June 17, 2016, following the UK implementation of the EU audit regulation and directive, the AQR team is responsible for reviewing all PIE audits. The FRC, as ultimate competent authority, will delegate the reviews of all other audits to the RSBs.

Based on IFAC staff review of the information available via the FRC webpage, the QA review system appears to meet all the requirements set out in the best practices of SMO 1.

RSBs are required to have effective monitoring systems in place, which ensure that statutory audits are conducted properly and in accordance with applicable professional standards and codes of ethics. Such standards include the International Standard on Quality Control (ISQC) 1 (UK), which is issued by the FRC and based on the International Auditing and Assurance Standards Board’s ISQC 1. Each RSB discharges this responsibility in accordance with its own rules and practices, and its monitoring arrangements are subject to oversight by the FRC. The RSBs have all indicated that they have a fully operational QA review system in place, and that the QA review systems are compliant with SMO 1 requirements.

Current Status: Adopted

The six Recognized Qualifying Bodies (RQBs) deliver the initial and continuing professional education (IPD and CPD) for statutory auditors in the UK. The Companies Act of 2006 specifies detailed educational and qualification/certification requirements for auditors, which the RQBs must ensure are upheld through the arrangements that they establish. In accordance with the Companies Act of 2006, the RQBs’ education and certification arrangements are subject to oversight by the Financial Reporting Council (FRC), which has the authority to recognize and derecognize RQBs. The FRC has an agreement with the six chartered bodies (ACCA, the Association—CIMA, CIPFA, ICAEW, CAI, and ICAS) and the AIA to oversee IPD and CPD for accountants.

Five RQBs (ACCA, CAI, ICAEW, ICAS, and CIPFA) as well as AAT, the Association—CIMA and IFA are members of IFAC, and all confirm that their professional accountancy qualifications meet the IAESB’s requirements set out in the revised 2015 IES.

Current Status: Adopted

The Financial Reporting Council (FRC) is the authorized body for setting auditing standards in the UK in accordance with the Companies Act of 2006 and Statutory Instrument on Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc.) Order 2012 (SI 2012/1741). The Companies Act of 2006 establishes mandatory audit requirements (statutory audits) for all companies unless they qualify for exemptions based primarily on size, nature of activity and company type, or whether they are dormant. Audit exemptions are available for small companies or groups of companies that are not public companies or engaged in the provision of financial services and meet qualifying criteria. All financial statement audits must be conducted in accordance with International Standards on Auditing (UK) issued by the FRC.

ISAs (UK) are based on ISAs issued by the IAASB, with some additions to account for UK Company law.

Current Status: Adopted

In accordance with their charters and by-laws, professional accountancy organizations (PAOs) in the UK are authorized to establish ethical requirements for their members. In addition, the Financial Reporting Council (FRC) establishes the mandatory Ethical Standard (ES) that must be complied with in the conduct of audits based on its standard-setting authority granted by the Companies Act of 2006 and Statutory Instrument on Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc.) Order 2012 (SI 2012/1741). It is the FRC’s view that compliance with ES will result in compliance with the IESBA’s Code of Ethics.

All PAOs in the UK indicate that they have adopted the requirements of the IESBA Code of Ethics (2018 version). Furthermore, all PAOs indicate that they have an ongoing process to consider and incorporate new and amended requirements issued by the IESBA where they are not in conflict with national laws and regulations.

Current Status: Adopted

The UK Treasury is responsible for developing standards and policies for Central Government financial statements. The Chartered Institute of Public Accountancy (CIPFA) and the Local Authority Scotland Accounts Advisory Committee (LASAAC) work together on the Local Authority Code Board, a standing committee of CIPFA and LASAAC, to set accounting standards for local governments in the UK. The Financial Reporting Advisory Board, in accordance with the Government Resources Accountants Act of 2000, advises the Treasury on financial reporting and standards.

The UK Treasury issues accounting policies, which are outlined in the Government Financial Reporting Manual, for the preparation of Central Government financial statements. The policies are based on accounting and disclosure requirements of the Companies Act of 2006 and EU-adopted IFRS, which are modified where necessary. International Public Sector Accounting Standards (IPSAS) form the second tier of accounting guidance and are applied in circumstances where IFRS do not address a public sector issue.

The CIPFA/LASAAC Local Authority Code Board, issues the Code of Practice on Local Authority Accounting for the United Kingdom (the Code of Practice) for local government bodies. The Code of Practice is based on EU-adopted IFRS and draws on IPSAS and Financial Reporting Standards issued by the Financial Reporting Council.

Current Status: Partially Adopted

In accordance with their charters and by-laws, professional accountancy organizations (PAOs) are authorized to establish systems of investigation and discipline (I&D) for their members for failure to comply with applicable standards of professional conduct. In addition, the Financial Reporting Council (FRC) requires Recognized Supervisory Bodies (RSBs) to have effective I&D systems in place. The FRC is responsible for the oversight of the I&D systems established by RSBs—ACCA, CAI, ICAEW, and ICAS—in the UK in accordance with the Companies Act of 2006. The FRC directly investigates cases of misconduct related to major public interest entities in line with SMO 6 requirements. RSBs’ I&D systems are also subject to oversight by the UK’s Insolvency Service. The FRC has an agreement with the six chartered bodies (ACCA, the Association—CIMA, CIPFA, ICAEW, CAI, and ICAS) and the AIA to oversee their I&D systems for accountants as well.

The PAOs (both RSBs and others: AAT, the Association—CIMA, CIPFA, and IFA) have reported that they have I&D systems in place that fulfill the requirements of SMO 6 requirements. While the AIA is not a member of IFAC, based on an IFAC staff review, its I&D system appears to be in line with the main requirements of SMO 6.

Current Status: Adopted

The Financial Reporting Council (FRC) has the authority to adopt accounting standards in the UK in accordance with the Companies Act of 2006 and Statutory Instrument on Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc.) Order 2012 (SI 2012/1741). 

EU-endorsed IFRS are required to be applied in consolidated financial statements of parent companies with securities that are traded on a regulated market. Other entities apply ‘reduced disclosure’ EU adopted IFRS, or simpler Financial Reporting Standards (FRS) developed by the FRC, depending on the size, type of company, and the nature of activities that is conducted. FRS are based on the IFRS for SMEs, with significant modifications.

Current Status: Partially Adopted

Relevant Organizations

• Association of Accounting Technicians (AAT)
• Association of Chartered Certified Accountants (ACCA)
• Association of International Accountants (AIA)
• Association of International Certified Professional Accountants—(Association—CIMA)
• Chartered Accountants of Ireland (ICAI)
• Chartered Institute of Public Finance and Accountancy (CIPFA)
• CIPFA/LASAAC Local Authority Code Board
• Financial Reporting Advisory Board
• Financial Reporting Council
• GOV.UK
• International Forum of Independent Audit Regulators (IFIAR)
• Institute of Chartered Accountants of England Wales (ICAEW)
• Institute of Chartered Accountants of Scotland (ICAS)
• Institute of Financial Accountants (IFA)
• Irish Auditing and Accounting Supervisory Authority (IAASA)
• Local Authority Scotland Accounts Advisory Committee

Relevant Legislation

• Companies Act, 2006
• Companies Act 2006 Requirements for Recognised Supervisory Bodies (RSBs)
• Companies Act 2006 Requirements for Recognised Qualifying Bodies (RQBs)
• Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012
• Co-operative and Community Benefit Societies Act 2014
• Government Resources Accountants Act of 2000
• International Standard on Auditing (UK) 570 (Revised)
• International Standard on Quality Control (UK and Ireland) 1
• Large and Medium-sized Companies and Groups (Accounts and Reports) Regulation 2008
• Partnerships (Accounts) Regulations 2008
• Small Companies and Groups (Accounts and Directors’ Reports) Regulation 2008
• Small Companies (Micro-Entities’ Accounts) Regulations 2013
• Statutory Instrument on Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc.) Order 2012 (SI 2012/1741)

Relevant Publications

• AAT, SMO Action Plan, November 2019.
• ACCA, SMO Action Plan, September 2019.
• Association—CIMA, SMO Action Plan, September 2019.
• CIPFA, SMO Action Plan, December 2019.
• Companies House, Life of a Company, Part 1 Annual Requirements, July 2015.
• Deloitte & Touche, IPSAS in Your Pocket, 2015.
• European Commission, Audit Directive – Transposition Status, October 2018.
• Financial Reporting Council, Audit Regulatory Sanctions Procedure, 2016.
• Financial Reporting Council, FRS 100 Application of Financial Reporting Requirements, November 2012.
• Financial Reporting Council, FRS 102, August 2019.
• Financial Reporting Council, FRS 105, March 2018.
• Financial Reporting Council, Post Implementation review: 2016 Ethical and Auditing Standards Changes to Implement the Audit Regulation and Directive, November 2018.
• Financial Reporting Council, Enhancing Confidence in Audit: Proposed Revisions to the Ethical Standard, Auditing Standards, UK Corporate Governance Code and Guidance on Audit Committees, September 2015.
• Financial Reporting Council, Key Facts and Trends in the Accountancy Profession, 2015.
• Gov.UK, Government Financial Reporting Manual 2019–2020, January 7, 2019.
• ICAEW, SMO Action Plan, September 2019.
• ICAS, SMO Action Plan, September 2019.
• IFA, SMO Action Plan, September 2019.
• International Forum of Independent Audit Regulators, IFIAR 2019 Member Profile – FRC, August 2019.
• IFRS Foundation, IFRS Application Around the World, Jurisdictional Profile: United Kingdom, July 2016.