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FRC publishes Developments in Audit 2020 report

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14 Nov 2020

The Financial Reporting Council (FRC) has published their annual developments in audit report 2020.

The report brings together the FRC’s overview across the audit market. It captures the key publically reported quality metrics and findings (as published for the major audit firms in July 2020) and highlights its developing plans and changes in its structure around supervision of audit firms.

The key messages are:

  • Continued inconsistency in audit quality – The FRC highlights its concerns that audit firms are not delivering quality on a consistent basis indicating that “49 out of the 130 audits inspected (primarily covering audits with year-ends between July 2018 and June 2019), required either improvement or significant improvement”. The key findings are related to challenge of management in areas of complexity and forward-looking judgements such as goodwill impairment, audit of going concern, group auditor oversight and quality control over audit. The FRC also saw examples of good practice including a willingness to delay and modify audit reports where necessary, the effective use of specialists and some examples of strong challenge of management.
  • Audit market health and resilience – the FRC continues to strive to achieve greater competition in the market, particularly for FTSE350 audits, and to monitor the resilience of audit firms including the impact of the pandemic.
  • COVID-19 – the report looks at the impact that COVID-19 is having on audit. The FRC highlight that its audit quality findings are all on engagements performed before the pandemic and that there is an even greater challenge looking beyond that. It indicates that judgements especially around going concern, remote working and controls and fraud risk are those areas that COVID-19 has and will continue to have the most significant impact on. The FRC has previously published guidance to support the provision of high-quality financial information to markets and high-quality audit work including guidance for companies preparing financial statements and a bulletin for auditors covering factors to be considered when carrying out audits during the Covid-19 crisis.

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

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