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“Developments in Audit” is a “state of the nation” review for audit in the UK. It highlights key themes and issues and provides a robust evidence base to allow for an informed debate about the future of audit. These themes include:
Independence
Public confidence in audit depends on confidence in the independence of the auditor. The FRC will, as part of a comprehensive review of the 2016 auditing and ethical standards, test the effectiveness of the rules on independence. The review will include determining whether further actions are needed to prevent auditor independence being compromised, including whether all consulting work for bodies they audit should be banned. The FRC will work closely with the Competition and Markets Authority (CMA) in this area.
Viability
Taking lessons from recent company failures the FRC will develop proposals to strengthen requirements on auditors when considering whether an organisation is a going concern. This includes whether the responsibilities of auditors in assessing companies’ statements on their longer-term viability should be enhanced and whether auditors should report publicly on their views of the realism of assessments made by companies.
Investor needs
The FRC is undertaking a review of the work auditors do on the front half of the annual report to assess whether auditors are undertaking enough work to conclude it is not materially misstated. The FRC will shortly launch a major review of stakeholders’ needs for information in corporate reports and will consider to what extent such information needs to be assured.
Audit quality
FRC has adopted an enhanced programme of audit firm monitoring. We have also strengthened our enforcement capacity so that we can conclude cases more quickly and revised our sanctions framework to levy penalties that reflect the gravity of the issue.