04 February 2013

FRC consults on proposals to improve the auditor's report

The Consultation Paper proposes requiring auditors’ reports to:

1. describe the risks of material misstatement that were identified and assessed by the auditor and which had the greatest effect on the audit strategy;
2. explain how the auditor applied the concept of materiality; and
3. summarise the audit scope and in particular how the scope responded to the matters set out in (a) and (b).

The FRC believes these changes will better meet the needs of investors and thus enhance the value of audit. It hopes the findings from this consultation will influence the work of others seeking to enhance the communicative value of the auditor’s report; such as The EU and the IAASB.

The proposed changes build on changes made by the FRC to board and auditor reporting last Autumn, requiring:

• the auditor to communicate information to the audit committee about significant audit judgements;
• audit committees to report on their activities to the board (including on their communication with auditors);
• boards to describe the work of the audit committee in the annual report;
• and the auditor, in turn, to report by exception if the board’s disclosures do not, in its view appropriately address the matters it communicated.

Nick Land, Chairman of the FRC’s Audit and Assurance Council said: "The Consultation Paper proposes a step change from the traditional binary pass/fail model of audit report. Such reports have increasingly been criticised as being uninformative by investors, and other users of financial statements.”

The proposals in this Consultation Paper "close the circle" by requiring the auditor to disclose information about the audit, within the auditor’s report itself. Information about the audit is seen as more within the domain of the auditor than of the board."

Press release

Consultation

© FRC