SCHEDULE 1 Requirements for professional ethics, independence, objectivity, confidentiality, auditing standards and audit reporting
10 (1) Standards must ensure that A—
(a) has appropriate policies and procedures to ensure that no partner, director, member or shareholder of A or partner, director, member or shareholder of any affiliate of A intervenes in the carrying out of statutory audit work in any way which jeopardises A’s independence and objectivity in carrying out such work;
(b) has sound administrative and accounting procedures, internal quality control mechanisms (which are designed to secure compliance with decisions and procedures at all levels of A’s working structure), effective procedures for risk assessment and effective control and safeguard arrangements for information processing systems;
(c) has appropriate policies and procedures to ensure that A’s employees and any other individuals, whose services are placed at A’s disposal or under A’s control and who are directly involved in statutory audit activities, have appropriate knowledge and experience for the duties assigned;
(d) has appropriate policies and procedures to ensure that outsourcing of important audit functions is not undertaken in such a way as to impair the quality of A’s internal quality control and the ability of the competent authority to supervise A’s compliance with relevant requirements;
(e) has appropriate and effective organisational and administrative arrangements to prevent, identify, eliminate or manage and disclose any threats to their independence as referred to in paragraphs 2(3) and 3 to 8;
(f) has appropriate policies and procedures for carrying out statutory audits, coaching, supervising and reviewing the activities of A’s employees and organising the structure of the audit file as referred to in paragraph 12(1)(f);
(g) establishes an internal quality control system to ensure the quality of a statutory audit, which—
(i) covers at least the policies and procedures mentioned in paragraph (f); and
(ii) in the case of a firm, ensures that responsibility for the system lies with an individual who either holds an appropriate qualification or holds a corresponding qualification to audit accounts under the law of an EEA State, or part of an EEA State, other than the United Kingdom;
(h) uses appropriate systems, resources and procedures to ensure continuity and regularity in carrying out A’s statutory audit work;
(i) has appropriate and effective organisational and administrative arrangements for dealing with and recording incidents which have, or may have, serious consequences, for integrity of A’s statutory audit work;
(j) has in place adequate remuneration policies, including profit-sharing policies, providing sufficient performance incentives to secure audit quality (including provision that the amount of revenue that A derives from services other than statutory audit services must not form part of the performance evaluation and remuneration of any person involved in, or able to influence the carrying out of, the audit);
(k) monitors and evaluates the adequacy and effectiveness of A’s systems, internal quality control mechanisms and arrangements established in accordance with these Regulations, the Audit Regulation or Parts 16 or 42 of the Act and takes appropriate measures to address any deficiencies;
(l) carries out an annual evaluation of the internal quality control system referred to in sub-paragraph (1)(g), keeps records of the findings of that evaluation and any proposed measure to modify the internal quality control system;
(m) documents and communicates to A’s employees (and where A is a firm, communicates to A’s partners or members) the policies and procedures referred to in this sub-paragraph;
(n) takes into consideration the scale and complexity of A’s activities when complying with the requirements mentioned in this paragraph and is able to demonstrate to the competent authority that its policies and procedures are appropriate given the scale and complexity of those activities.
(2) The requirements of standards mentioned in sub-paragraph (1) may be simplified in relation to the statutory audit of companies which are exempt from the requirements of the Act relating to audit by virtue of section 477 of the Act.
(3) In this paragraph “affiliate”, in relation to A, means any undertaking, regardless of its legal form, which is connected to A by means of common ownership, control or management.