Calls for OFR clarification answered
Watchdog convenes working group to clarify auditor's part in reviewing company OFRs
The accountancy watchdog will prepare guidelines for audit firms evaluating a company’s mandatory operating and financial review for the first time next year, after confusion arose over the exact role the auditor should play.
The Auditing Practices Board, part of the Financial Reporting Council, has pulled together a working group to examine some of the unresolved issues over the auditor’s part in reviewing an OFR.
Mark O’Sullivan, senior manager of PricewaterhouseCoopers’ ValueReporting group, said: ‘Historically, we have only needed to form an opinion if the OFR is inconsistent with the financial statements. We will now be required to form an opinion, positive or negative, as to whether the information in the OFR is consistent with the financial statements and, more importantly, whether it is consistent with the information gathered in the audit. What this means is unclear.’
Confusion remained over whether the requirements relate to the group audit or the overall audit, including overseas subsidiaries; whether it would affect just the main audit partner or the entire audit team; and how it was to be documented.
Earlier this month, the Accounting Standards Board released its standard for the OFR, telling companies what they must do to comply with the new laws, as well as providing guidelines. The APB is hoping to do the same for auditors, in time for firms undertaking their first OFR examination.
‘We’re still at a relatively early stage of the process as most companies won’t have to do their first OFR until December next year,’ said Jon Grant, executive director at the APB. ‘We hope the situation won’t be too difficult for auditors, since the requirement for auditors to consider whether directors had prepared the OFR after due and careful enquiry has been dropped.’
Grant did admit there was a challenge to define how auditors should judge if the OFR was consistent with the knowledge gained through the audit, but fully expected to have clear guidance by the 1 April 2006 deadline.