THE FINANCIAL REPORTING COUNCIL has expressed its delight at the take-up rate and level of innovation demonstrated by the profession over the requirements for extended auditor’s reports.
First announced in 2013, the requirements call on auditors to describe the assessed risks of material misstatement, materiality and the scope of the audit which is beginning to shed more light and transparency on a process that had previously been described as a “black box” by investors. The profession’s watchdog hopes this trend will be converted into “improved justifiable confidence” in audit.
Much of the FRC’s optimism has been gleaned from the contents of its newly published survey, Extended auditor’s reports: A review of experience in the first year.
Commenting on the survey, Melanie McLaren, executive director for codes and standards said: “Confidence in UK audits underpins investor confidence in UK capital markets. The tone and tenor of this report is that the response of auditors to changes designed to improve confidence has been most encouraging. We wanted auditors to be more transparent and insightful in the way they report.
“The diversity of approaches adopted by different audit firms is to be embraced and we are excited to see how firms will continue to innovate and develop their ideas on how to report. The UK has been one of the first countries to move away from boilerplate auditor’s reports that were failing to communicate the auditor’s work and insights. We are pleased to see that international standards are now moving in a similar direction.”
Among the more significant innovations highlighted in the survey include the disclosure of the materiality benchmark used and revealing the magnitude of unadjusted differences being reported to the Audit Committee.
The report also shows that detailed audit findings with respect to identified risks are being reported while generic descriptions of the scope of an audit are being moved to a web-site. Locating the auditor’s opinion at the beginning of the report rather than the end and addressing going concern disclosures in auditor’s reports, were also key areas highlighted for praise.
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