New audit guidelines could lead to mandatory rules

The audit standard setter has released a raft of new guidelines which could
pave the way for mandatory European rules for auditors.

The Auditing Practices Board today announced 33 new international standards
on auditing and a new international standard on quality control.

The new measures concentrate on three main areas: group audits, audit of
related parties and the audit of account estimates.

For group audits, firms will have to be more actively involved in
understanding the larger subsidiaries.

There is also a focus on the audit of related parties – often the area where
fraud is detected.

Firms will also have to take a closer look at valuations when they examine
account estimates.

The changes are the culmination of years of work from some of the large
accounting firms and regulators.

Jon Grant, technical director of the APB, said firms would have to work hard
to absorb the changes.

“There is quite a lot of work that has to be done by all firms in the next
twelve months,” he said.

The changes will apply to audits of financial statements for periods ending
on or after 15 December 2010.

Richard Fleck, chairman of APB, said the standards were developed with
significant input from regulators and stakeholders “and are more rigorous and
clearer than existing auditing standards in any country”.

“The APB has concluded, after consultation, that the international standards
are fit for purpose in the UK and Ireland and should be applied as soon as
practicable,” he said.

The APB is hopeful that the new measures will be mandated by the European
Union (EU). The changes address previous concerns by the EU and it is hoped will
now clear the path to their eventual adoption.

Grant said the EU the transition to compulsory standards was now being
considered at a political level.

“They have done all the preparatory work. They have done work into the costs
and benefits on looking into a European basis and they are now going into the
political phase,” he said.

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