ADGM’s new Auditors’ Framework was enacted on 25 August 2021, with a commencement date of 1 December 2021. Whilst substantially effective in December 2021, the new legal framework provides enhanced powers for the Registration Authority (RA) in several areas effective immediately.
Rules 8, 11, 16 and Parts 9 and 10 of the Companies Regulations (Auditors) Rules 2021 cover these enhanced powers of the RA in detail. We recommend firms and principals review the new framework found here: Commercial Legislation - Rulebook.
Some of the key changes the new regime brings in are highlighted below.
- Custom registration requirements
- Targeted controls to enhance audit quality
- The role of the Responsible Individual (RI)
- Role and powers of the RA
- Fee structure
The international and supportive business environment ADGM offers to entities is a key reason for the growth of the financial centre. The size, nature and complexity of these entities has meant that not all audit firms are likely to have the appropriate experience and know-how to carry out and deliver high-quality audits for these entities.
As part of eligibility checks during the registration process, the RA will ensure applicant audit firms meet the additional criteria required from firms who wish to apply for permits, in order to conduct audits of more complex firms, e.g., financial services firms.
The new framework contains specific requirements to ensure ADGM registered audit firms comply with the International Standards on Auditing, as well as ethical and independence rules.
In line with international standards, there are restrictions on non-audit services provided. The RA will ensure its registered audit firms are placing ethics at the forefront of all activities, with particular focus on conflicts, independence, and fee dependency amongst other things.
Ultimately responsibility for the quality of the audit lies with the engagement principal. ADGM entities should have access to audit firms that are suitable for the size, sector and complexity of their organisation.
As part of eligibility checks to register RIs, the RA will ensure audit principals have sufficient experience and qualifications relevant to the audits the RI is leading. The RA will require evidence of previous experience in the sector and record of continuing professional development to demonstrate eligibility.
The new framework provides the RA, as the Competent Authority in ADGM, further responsibilities and powers. International equivalence is at the heart of these enhancements.
Audit quality monitoring will be an integral part of the RA’s oversight function. In addition, the RA will have the power to sanction audit firms and principals where necessary.
The framework includes comprehensive monitoring and enforcement provisions, with investigation and sanctioning powers. These are in line with international standards as well as IOSCO’s Enhanced Multilateral Memorandum of Understanding requirements.
The RA is committed to conduct itself in a transparent, objective and proportionate risk-based approach to supervision and monitoring.
A new fee structure is in place that is commensurate to the size and nature of ADGM audit firms. The new structure ensures simplicity and proportionality for our audit firms and moves away from the flat structure under the old regime. The fee basis allows ADGM to be competitive, comparable to other similar jurisdictions and use the fees to support its oversight function.
What to expect if you are an existing ADGM Recognised Auditor
If your firm is currently on the register of Recognised Auditors, you can take advantage of the transition period where transitional arrangements will apply to ensure there is no gap in the audit services offered to ADGM entities.
Re-registration is required from all Recognised Auditors who wish to carry on performing auditing activities within ADGM. The transition period means firms need to re-register by their registration renewal date or 12 months from the effective date of the new framework (1 December 2021); whichever is earlier.
It is important to note that whilst the transition arrangements provide time to re-register, the enhancements to the role and powers of the Registration Authority (RA) came into effect as of 25 August 2021.
Planning ahead for re-registration
To re-register under the new framework, Recognised Auditors will need to follow the steps noted here: New auditors.
It is important that Recognised Auditors start planning now and use the transition period to their advantage in order to ensure continuity of audit services to their clients.
The re-registration process will include eligibility checks for both firms and principals, including Responsible Individuals. As part your application you will be required to submit evidence to show how you meet the eligibility criteria.
A key part of our eligibility check will be assessing the adequacy of professional indemnity insurance at the firm level and appropriate qualifications and experience for audit principals. Collating the supporting documentation to submit as part of your application can take time, especially for firms that are part of international networks. Planning ahead will allow you to gather all relevant documentation in time before re-registration.
Please take the time to understand the requirements by reviewing the legal framework governing audit firms and principals here: Commercial Rules & Regulations (Auditors).
Please note the registration application process involves a thorough review that is likely to take time to finalise and approve. If an application is deficient, this is likely to delay the registration process. Therefore, we strongly recommend you apply for re-registration under the new framework a minimum of one month prior to the anniversary of your existing registration to ensure there is no gap in your registered status.