04 October 2012

FRC's consultation on updated guidance for the audit of financial instruments

The current Practice Note (PN) 23 (Revised), Auditing Complex Financial Instruments – Interim Guidance, was issued by the Auditing Practices Board (APB)1 of the FRC in October 2009. It was issued as interim guidance primarily because it was acknowledged that it would need subsequent updating for the clarified ISAs (UK and Ireland) which would come into effect for audits of accounting periods ending on or after 15 December 2010. However, it was considered important to get updated guidance out at that time to help address issues that had been identified in the financial crisis.

The previous version of PN 23, issued in April 2002, had focused on guidance on auditing derivative financial instruments and had been based on International Auditing Practice Statement (IAPS) 1012 issued by the IAASB. When PN 23 was revised in 2009, it was believed helpful to widen its scope to cover other complex financial instruments as well as derivatives.

The proposed update reflects both the clarified ISAs (UK and Ireland) and updated guidance issued by the IAASB in its International Auditing Practice Note (IAPN) 1000, 'Special Considerations in Auditing Financial Instruments'.
 
The FRC has supplemented IAPN 1000 with guidance that is currently set out in Practice Note 23 (Revised) that is still believed relevant and with a small amount of new guidance in relation to matters not covered in either IAPN 1000 or Practice Note 23 (Revised).

Nick Land, FRC Board member and chairman of the Audit and Assurance Council, said: “The proposed updated guidance is intended to be relevant to audits of entities of all sizes that may be subject to the risks associated with using financial instruments. The guidance reflects lessons learnt in the financial crisis. The FRC invites comments from auditors and other stakeholders with an interest in audit.”

Press release

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