FRC defends commitment to international standards

by Richard Crump

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12 Dec 2013

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Financial Reporting Council

THE FRC has stressed its commitment to international auditing standards and defended its decision to make changes to the UK auditing regime ahead of recommendations being considered at a global level.

The UK accounting watchdog came under fire from the ICAEW last month for "acting first" on updating standards at a time when global changes are being discussed.

In a letter sent to the IAASB, the global auditing standard setter currently changing the way auditors report on financial statements, the FRC said it was "greatly beneficial" for the evolution of international standards that national bodies play a "pathfinder" role in their development.

"Our commitment to the development of fit for purpose UK standards, in our minds necessarily involves a commitment to developing international standards and solutions," the FRC said. "We do not see our work as competing with that of others but rather of complementing it.

"As UK regulator, the FRC has a clear responsibility to pursue necessary improvements to its standards in the public interest where its standards apply and at a pace that is responsive to UK market needs."

Last year, the FRC made changes to the UK's auditing regime, including new reporting disclosures in which auditors must provide an overview of the scope of the audit showing how it addressed the risk and materiality considerations.

Those changes differ slightly from the IAASB's proposals, which require going concern statements to be made in all cases. Additionally, the FRC's requirement to report on the application of materiality would be dealt with as an ‘other matter' rather than a ‘key audit matter' under the IAASB's proposals.

The FRC's decision to set auditing standards ahead of the IAASB was subjected to withering criticism from the ICAEW in November. By acting alone, the institute claimed, the FRC was "likely to weaken the UK's influence internationally" and create confusion for investors.

"We do not really understand why the FRC is asking whether it should seek to implement the IAASB's proposals in place of its own at this stage, when it has already made it clear by its actions that it does not intend to do so," the ICAEW said in a letter to the FRC last month. "We are concerned that the FRC's actions indicate that it may no longer be committed to ISAs."

The FRC said it was aware of the ICAEW's misgivings but that "such misgivings are not widely held".

"Users of financial statements and others who responded to our consultations confirmed this combination of measures was an appropriate approach to providing them with further information and was likely to be of considerable value to them," the FRC said.

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