This publication from Deloitte (UK) discusses the changes required to audit reports of companies which comply with the UK Corporate Governance Code as a result of the revisions made to ISA 700 (UK and Ireland) by the Financial Reporting Council (FRC).

For a number of years investors, and more recently the Competition Commission, have been calling for the audit process to be more transparent. The FRC’s revised standard completes its work to make the audit process more transparent which started with the changes made to the UK Corporate Governance Code last autumn. For 30 September 2013 year-ends onwards, the annual report is required to include the following:

• the critical judgements formed and key estimates made by management in preparing the financial statements;
• the audit committee’s report on the significant issues that it considered in relation to the financial statements, and how these issues were addressed.; and
• the external auditor’s report on the risks they identified which had the greatest effect on their audit and their audit response.

The UK is not alone in moving towards a more discursive audit report - the Public Company Accounting Oversight Board in the USA, the European Commission and the International Auditing and Assurance Standards Board all have initiatives in this area.  However, the UK has led in this area, reinforcing London’s position not only as a leading capital market but as a centre for leadership in thinking on Corporate Governance matters.

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