FRC surveys first year of extended audit reports
The audit profession's response to new reporting requirements has been "encouraging", according to the Financial Reporting Council (FRC).
The FRC's survey Extended auditor's reports: A review of experience in the first year indicates that auditors have not only met the new requirements to explain more about how they carry out their work but, in many cases, have gone further and reported more widely than required.
The FRC considers the extent of innovation and the diversity of approaches adopted by different audit firms to be very encouraging.
Significant innovation was found in the following areas:
- Disclosing the materiality benchmark used.
- Disclosing the magnitude of unadjusted differences being reported to the Audit Committee.
- Reporting of detailed audit findings with respect to identified risks.
- Experimentation with detailed broader explanation of the audit scoping process.
- Improved presentation of auditor's reports through the use of diagrams and graphs.
- Addressing going concern disclosures in auditor's reports.
- Locating the auditor's opinion at the beginning of the report rather than at the end.
- Moving generic descriptions of the scope of an audit to a website.
The survey also suggests areas where further changes might be made. These areas are:
- Increasing the entity specific risk reporting.
- Improving the discussion of the auditor's application of materiality and why a particular benchmark or level was chosen.
- Making a clearer link between the discussions of risks and materiality and the description of how these influenced the scope of the audit.
The FRC says: "The requirements for auditors to describe assessed risks of material misstatement, materiality and the scope of the audit are beginning to make a process, that had previously been described as a "black box" by investors, more transparent. In time we hope this will lead to improved justifiable confidence in audit."
The full report can be viewed on the FRC website.