FRC Issues Revised Auditing Standards to Enhance Communications to Audit Committees and Auditor Reporting

Jack Humphrey, Regulatory journalist
October 01, 2012 /

The FRC has, following consultation, today issued revised International Standards on Auditing (ISAs) (UK and Ireland):

260    Communication with those charged with governance

700    The auditor’s report on financial statements (Revised)

705    Modifications to the opinion in the independent auditor’s report

706    Emphasis of matter paragraphs and other matter paragraphs in the independent auditor’s report

720A The auditor’s responsibilities relating to other information in documents containing audited financial statements

The revised standards are effective for audits of financial statements for periods commencing on or after 1 October 2012.

The revisions primarily give effect to proposals in Effective Company Stewardship: Next Steps published by the FRC in September 2011 and support changes to the UK Corporate Governance Code and Guidance for Audit Committees that have also been issued by the FRC today. The changes in the standards are mainly directed at:

  • Enhancing auditor communications by requiring the auditor to communicate to the audit committee information that the auditor believes the audit committee will need to understand the significant professional judgments made in the audit;
  • Extending auditor reporting by requiring the auditor to report, by exception, if the board’s statement that the annual report is fair, balanced and understandable is inconsistent with the knowledge acquired by the auditor in the course of performing the audit, or if the matters disclosed in the report from the audit committee do not appropriately address matters communicated by the auditor to the committee.

Revisions to the auditor reporting standards have also been made to enable those standards to be used by auditors in the Republic of Ireland; and also more fully align the requirements of ISAs (UK and Ireland) 705 and 706 with those of ISA (UK and Ireland) 700.

Bulletin 2012/1, which will be issued in the near future, provides a compendium of illustrative auditor’s reports on Irish financial statements.

Nick Land, FRC Board member and chairman of the Audit and Assurance Council, said, “The revised standards have been designed to continue the FRC’s work on enhancing effective company stewardship and stimulate greater transparency about the judgments made by boards and auditors.

“Adopting the clarified reporting ISAs (UK and Ireland) in the Republic of Ireland will enable Irish auditors’ reports to be more concise and more relevant.”

 

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