We comment to the FRC on the IAASB’s Exposure Draft on an auditor's responsibilities relating to 'other information'

  • FRC letter on ISA 720 - June 2014 Image

18 Jun, 2014

We have published our comment letter to the Financial Reporting Council (FRC) on their invitation to comment on the International Audit and Assurance Standards Board’s (IAASB’s) revised Exposure Draft of International Standard on Auditing (ISA) 720 'The auditor’s responsibilities relating to other information in documents containing or accompanying audited financial statements and the auditor’s report thereon'.

The IAASB issued an Exposure Draft for a revised International Standard on Auditing (ISA) 720 in November 2012.  The revised Exposure Draft responds to significant concerns raised in response to the IAASB's original proposals.

In their invitation to comment, the FRC sought the views of respondents on the IAASB’s proposals in order to assist it in developing a response to the IAASB and were also keen to understand from respondents whether (and if so how) the proposed changes should be adopted in the UK and Ireland.

Our main points are:

  • The FRC should adopt the revised standard, supplementing for the UK, in place of the existing ISA (UK and Ireland) Section A.
  • The FRC should take the opportunity to combine the existing ISA (UK and Ireland) Section B with the revised ISA 720. Section B deals with the auditor’s statutory duty to report on the consistency of the directors’ report with the financial statements. Following the introduction of the strategic report, Section B is out of date; combining the two would also reduce confusion for auditors and other stakeholders and improve audit quality by applying the tougher requirements of the revised ISA to this statutory duty.
  • Both the existing ISA 720 and the IAASB’s exposure draft allow the “other information” to be provided both before and after the auditor’s report on the financial statements is signed. This has never been the case in the UK; ISAs (UK and Ireland) require all of the “other information” to be provided to the auditor, read by the auditor and approved by those charged with governance before the auditor’s report is signed. We agree with the FRC that this should continue to be the case for now. However, we recommend that the FRC should keep this under review as the Financial Reporting Lab explores electronic reporting options, where standing information may be updated as and when it changes rather than being refreshed every time new financial statements are issued.
  • The FRC should consider whether there is a way of combining the statutory consistency opinion and the reporting by exception on other information. This would streamline the audit report and reduce confusion for readers.

Further comments and a full response to all questions raised in the invitation to comment are contained within the full comment letter.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.