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Financial Reporting Council issues revisions to audit reports of listed companies

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04 Jun 2013

In response to calls from investors to make audits more transparent, the Financial Reporting Council (FRC) has today issued revisions to ISA 700 (UK and Ireland) 'The Independent Auditor’s Report on Financial statements'. The revisions require auditors reporting on companies which comply with the UK Corporate Governance Code to provide significantly increased disclosure around the work that they have performed on the audit and are a move away from the traditional binary pass/fail model of the past. The revisions are designed to complement changes to the UK Corporate Governance Code in October 2012 and are effective for the audits of financial statements for periods commencing on or after 1 October 2012.

The increased disclosure within the audit report, which received strong support during the consultation process (link to FRC website), will provide better communication between auditors and investors and will give the investor real insight as to what audit work was performed, where the audit work was performed and the extent to which the work performed addressed the key risks facing their business.     

The new style audit report requires increased disclosures to be provided in three areas; risks, materiality and scope of the audit. 

Risks 

The audit report should describe the risks that had greatest effect on: 

  • The overall audit strategy;
  • The allocation of resources in the audit; and
  • Directing the efforts of the engagement team. 

Materiality     

The audit report should explain how the auditor applied the concept of materiality in planing and performing the audit 

Scope of the audit 

The audit report should give an overview of the scope of the audit, showing how this addressed the risk and materiality considerations.

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