Audit: New FRC practice aid for audit committees
The Financial Reporting Council (FRC) has published a 'practice aid' to assist audit committees in evaluating audit quality, as part of their assessment of the effectiveness of the external audit process.
The practice aid focuses on assessing audit quality and gives practical suggestions on:
- How audit committees might tailor their evaluation in the context of the company's business model and strategy.
- The business risks the company faces.
- The perception of the reasonable expectations of the company's investors and other stakeholders.
The framework focuses on how the auditor demonstrates the effectiveness of key professional judgements made throughout the audit and how these might be supported by evidence of the following:
- A mindset and culture that exhibits integrity and objectivity and is aligned with the expectations and interests of users of their reports.
- The skills and knowledge to develop a thorough understanding of the company's business and industry; the environment in which it operates and of the applicable legal and regulatory framework; and the strength of character to provide effective challenge in performing the audit.
- The ability to establish effective quality control by putting in place the processes necessary to deliver a consistently high-quality audit.
Audit committees are encouraged to see their evaluation as integrated with other aspects of their role related to ensuring the quality of the financial statements – obtaining evidence of the quality of the auditor's judgements made throughout the audit – in identifying audit risks, determining materiality and planning their work accordingly and assessing issues.