FRC makes changes significant changes to audit reports

FRC makes changes significant changes to audit reports

The finance watchdog has made changes to ISA 700 - in the hope of increasing communication with investors

THE FRC has made significant changes to the UK’s auditing regime through a revised standard.

The financial reporting watchdog has issued a revised auditing standard, which it claims will enhance transparency in the auditor’s report, on the premise of increasing communication with investors.

Revisions to ISA 700 (UK and Ireland) “the Independent Auditor’s Report on Financial statements” requires auditors’ reports on companies which are applying the UK corporate governance code to explain more about their work.

Board engagement will also be included in the changes. The FRC is requiring boards to describe the work of the audit committee in annual reports and for the auditor to report if the board’s disclosures do not address matters it has communicated to the audit committee.

Auditors will also have to inform the committee about significant audit judgements and for the committee to report their activities and their communication with the auditor.

The revisions received strong support during the consultation process, said the FRC, and are therefore being adopted with only minor amendments.

Nick Land (pictured), chairman of the FRC’s Audit and Assurance Council, said: “The provision of a fuller description of the work the auditor has undertaken will give far more insight to investors than the binary pass/fail model of the current audit report.

“The improved report will be a better basis for engagement by investors with companies, and we encourage auditors and companies to work together to develop succinct communication to do so.”

Among the requirements, auditors will be asked to provide an overview of the scope of the audit showing how it addressed the risk and materiality considerations.

They will also have to describe the risks which have the greatest effect on: the overall audit strategy; allocation of resources in the audit; and directing the efforts of the engagement team. The FRC is asking that the report include an explanation of how auditors applied the concept of materiality when planning and performing the audit.

The changes will affect audits of financial statements for reporting periods on or after 1 October 2012.

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata
Professional Services

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine
Accounting Firms

Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021
Making Tax Digital

Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource