Summary

The Audit Firm Governance Code (“the Code”) was first published in January 2010. At that time, the Code applied to audit firms (“firms”) auditing 20 or more listed companies. It introduced for the first time the concept of independent non-executives (“INEs”) in firms. INEs are now well established in all of the firms currently applying the Code. The flexibility allowed by ‘comply or explain’ provisions remains an important characteristic of the Code. The Code was first updated by the FRC in 2016 following a high-level review of its implementation by those audit firms within its scope. It has been updated again in 2022 to take account of the introduction of operational separation of audit practices at the largest audit firms and findings from the FRC’s review of firm implementation against the 2016 Code. The threshold for application of the 2022 Code has been aligned with the rest of the regulatory regime for audit which is based on the audit of public interest entities (“PIEs”) rather than listed companies. The Code applies to the firm as a whole, not purely the audit practice. It continues to apply in its entirety in firms where the audit practice is operationally-separate from the rest of the firm.