Auditors Audit and Assurance Auditor reporting: a review of current practice

Auditor reporting: a review of current practice

Introduction

In August 2022, the FRC published a series of infographic ‘snapshots’ on the current state of auditor reporting in the UK.

What are auditor’s reports?

Auditor’s reports are the principal channel of communication between auditors and users of financial statements. As well as providing the traditional opinion on the truth and fairness of the financial statements, they include a description of the risks of material misstatement which had the greatest effect on the overall strategy, allocation of resources, and direction of effort by the audit team. The auditor is also required to provide information on how the auditor applied the concept of materiality, and to provide a summary of the scope of the audit. The detail and insights provided by these reports were welcomed following their introduction in the UK in 2014.

Why was the research commissioned?

Recent audit market reviews have suggested further enhancements to improve the ‘decision usefulness’ of the financial information companies publish. Concerns have also been expressed that, after an initial burst of innovation, auditor’s reports have become too lengthy and now contain too much standardised and boilerplate disclosures.

The FRC has undertaken to take steps to improve the useability and informativeness of auditor’s reports. The first stage in this process is to start a dialogue on how auditor reporting can be improved, combined with a strong understanding of current practice.

Recent audit market reviews have suggested further enhancements to improve the ‘decision usefulness’ of the financial information companies publish. Concerns have also been expressed that, after an initial burst of innovation, auditor’s reports have become too lengthy and now contain too much standardised and boilerplate disclosures. The FRC has undertaken to take steps to improve the useability and informativeness of auditor’s reports in our recent Position Paper.

The FRC has published two earlier reports on auditor reporting, in 2015 and 2016.

To ensure an up-to-date evidence base for the current research, the FRC commissioned this research from a team of researchers based at the Universities of Portsmouth, Southampton, and Brunel. A large sample of auditor’s reports were surveyed, with the research being performed between October 2021 and June 2022.

The research sample

A sample of nearly 400 auditor’s reports issued during 2021 for FTSE 350 companies and large AIM companies, has been surveyed to explore their form and content.

An introduction to the snapshots, setting out further details on the background to the project and research design, can be found in the following document:

The findings

The findings have been summarised as a series of six infographic ‘snapshots’:

Snapshot Format
Snapshot 1: Understandability and useability of auditor reports PDF
Snapshot 2: Communicating judgements on materiality and the scope of group audits PDF
Snapshot 3: Key audit matters PDF
Snapshot 4: Climate change, COVID-19, alternative performance measures, and graduated findings PDF
Snapshot 5: Going concern PDF
Snapshot 6: Fraud and other irregularities PDF