The FRC responds to criticism that auditors’ reports are uninformative by issuing a Consultation Paper: Revision to ISA (UK and Ireland) 700. This proposes requiring auditors’ reports to:
Describe the risks of material misstatement that were identified and assessed by the auditor and which had the greatest effect on the audit strategy;
Explain how the auditor applied the concept of materiality; and
Summarise the audit scope and in particular how the scope responded to the matters set out in (a) and (b).
The FRC believes these changes will better meet the needs of investors and thus enhance the value of audit.
We hope the findings from this consultation will influence the work of others seeking to enhance the communicative value of the auditor’s report; such as The European Union and the International Auditing and Assurance Standards Board (IAASB).
The proposed changes build on changes made by the FRC to board and auditor reporting last Autumn, requiring: the auditor to communicate information to the audit committee about significant audit judgments; audit committees to report on their activities to the board (including on their communication with auditors); boards to describe the work of the audit committee in the annual report; and the auditor, in turn, to report by exception if the board’s disclosures do not, in its view appropriately address the matters it communicated.
Nick Land, Chairman of the FRC’s Audit and Assurance Council said:
"The Consultation Paper proposes a step change from the traditional binary pass/fail model of audit report. Such reports have increasingly been criticised as being uninformative by investors, and other users of financial statements.”
The proposals in this Consultation Paper "close the circle" by requiring the auditor to disclose information about the audit, within the auditor’s report itself. Information about the audit is seen as more within the domain of the auditor than of the board."
The Consultation period ends on 30 April 2013
Notes to editors
The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
The Consultation Paper is available here.
The FRC will be holding a public meeting to discuss the proposals on the morning of Thursday 28 March in London (further details will be published on the FRC's website).
All Press enquiries should be directed to: Sophie Broom, Communications Executive, on telephone: 020 7492 2395 or email: firstname.lastname@example.org.