UK feedback statement on auditor scepticism

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25 Mar, 2011

The UK Financial Reporting Council (FRC) has published a feedback statement summarising the responses to its August 2010 Discussion Paper Auditor Scepticism: Raising the Bar.

While primarily focused on the auditing issues, the paper include observations on the interaction of the judgement required in applying IFRSs and audit scepticism. An extract:

Several of the responses from the profession noted that there was a possibility that regulators could confuse the proper application of IFRS, which contemplates a range of potential outcomes, with a lack of scepticism on the part of the auditor. In particular some drew attention to the requirement that impairment losses for financial assets need a neutral assessment of loss events incurred at the balance sheet date and not losses that are expected to occur in the future. Other responses observed that it was not unusual for auditors and management to have different views on estimates but suggested that, where both fell within a reasonable range, it was inappropriate for the auditor to try to replace management's view of what a reasonable estimate was with their own.

The feedback statement (together with the original Discussion Paper) can be accessed on the FRC's website.

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