The FRC highlighted in its July 2016 report that there was an improved level of confidence in UK audit but did indicate that “more needs to be done in terms of market competition and improving good practice in the profession”. 

The updated report provides a summary of developments since July 2016 against the FRC’s plan for 2016/17.  The updated report provides updates on:

• Standards and Guidance on Audit – the updated report indicates that:
  • Progress has been made in the implementation of the new Auditing and Ethical Standards introduced in June 2016. The FRC has set up a consultative group, including auditors, audit committee members, investors and the professional bodies for audit and have been active members in the new European body to facilitate consistent implementation of the new requirements.
  • Investors are concerned that not all audit firms are serving investors’ interests when dealing with conflicts of interest.
  • In 2017/18 the FRC will review the effectiveness of governance and the culture of the eight audit firms adopting the Audit Firm Governance Code. 

• Audit Committees– the updated report indicates that:
  • The FRC has undertaken a third audit committee chair survey on audit quality and results show that audit committees “remain overwhelmingly positive as to tendering developments and audit quality”. The results also indicate that of those entities that had carried out an audit tender, 70% changed auditors and 18% of those indicated that audit quality improved as a result. 

• The FRC’s monitoring of audit quality – the updated report indicates that:
  • An emerging theme of the FRC’s reviews is that there continue to be examples of insufficient auditor scepticism in identified areas of significant risk such as the assessment of potential impairments and judgements concerning material accounting treatments.
  • For the first time, the FRS will publish a list of those entities whose audits they have reviewed and will offer further lists periodically. As a result of this increased transparency the FRC expects to see increased reporting by audit committees on its findings and increased investor scrutiny of audit quality.    

Updates are also provided on

• the FRC’s oversight of the professional bodies for audit; and
• audit enforcement. 

The updated report indicates that during the remainder of 2016/17 and into 2017/18 the FRC will continue to promote justifiable confidence in audit with a particular focus:

• on enhancing the speed and effectiveness of its audit enforcement; and
• a targeted improvement in audit quality of FTSE 350 audits. 

The press release and full report are available on the FRC website.