Audit watchdog warns on FRS 17
The UK's audit watchdog has warned auditors that their objectivity could be threatened if their firm is also providing actuarial services to the same company.
A new consultation paper issued today by the Auditing Practices Board looks at the difficulties surrounding FRS 17, the controversial new accounting standard that deals with company retirement benefits.
It stresses that it is the responsibility of directors – not auditors – to prepare financial statements that comply with the standard.
And it warns auditors that they should obtain much of the audit evidence connected with the work of actuaries.
Ian Plaistowe, APB chairman, said: ‘FRS 17 will for the first time bring onto a company’s balance sheet the surplus of deficit in its pension scheme. In some cases the figures involved may be material. This may have an important impact on the picture that is portrayed by the financial statements.
‘Yet these figures, although very large, are inevitably very imprecise: they are based on a complex valuation process involving extensive estimation and they may be highly sensitive to even very small changes in the underlying assumptions.’
He added: ‘Although it is not the auditors’ job to second guess the actuary, they need to be able to consider whether the process established by the directors is appropriate.’Companies have expressed concerns over the volatility the new standard will bring to their accounts, and how analysts will interpret the changes that arise.
However, some companies, such as Boots, have already introduced the new standard, which will take effect by stages until 2003, when it will be fully up and running.
The closing date for comments on the consultation paper is 21 September.
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