Revision on Audit Guidance of Friendly Societies Issued
The Auditing Practices Board (APB) of the Financial Reporting Council has published a revision of Practice Note (PN) 24 “The Audit of Friendly Societies in the United Kingdom” following its consultation draft released in January 2011 for public comment.
The Practice Note published on February 22, the revised “Bank reports for Audit Purposes in the United Kingdom”, is also related to the audit of insurers.
The newly revised guidance reflects the provisions of the clarified ISAs (UK and Ireland), which apply to the audit of financial statements of friendly societies for periods ending on or after December 15, 2010, and the changes in the legislative and regulatory framework.
In addition, the practice note contains audit guidance on the application of auditing standards issued by the APB to the audit of friendly societies that carry on insurance business in the United Kingdom.
“Friendly Societies may only carry out insurance business if authorised to do so by the Financial Services Authority (the FSA),” the FRC noted.
The Practice Note also contains guidance on auditor’s reports related to the regulatory returns and the auditor’s duty to report to the FSA.
“This Practice Note is supplementary to, and should be read in conjunction with, International Standards on Auditing (ISAs) (UK and Ireland), that apply to audits of financial statements for periods ending on or after December 15, 2010,” the FRC said.
“It sets out the special considerations relating to the audit of friendly societies which arise from individual ISAs (UK and Ireland) listed in the contents.”
The FRC stressed that it did not intend to provide step-by-step guidance to the audit of friendly societies, “so where no special considerations arise from a particular ISA (UK and Ireland), no material is included.”
Enhanced guidance is included in the PN with respect to auditing accounting estimates, materiality, and evaluation of misstatements identified during the audit.
Richard Fleck, APB Chairman said: “As Friendly Societies hold funds in excess of £16 billion on behalf of a membership of some 7.1 million, the revised Practice Note provides guidance for auditors of an important sector of the UK’s insurance industry.
“The APB is aware that significant changes to the legal and regulatory environment governing insurers will be taking place over the next few years, including in particular, the implementation of Solvency II. The APB will be monitoring the effect of these developments on the guidance in the Practice Note.”
The Insurance Committee of the Institute of Chartered Accountants in England & Wales contributed to the development of the bulletin.