To this end, the FRC is consulting on a series of changes to the International Standards on Auditing (UK and Ireland) that will apply to all audits.
To enhance auditor communications, auditors will be required to provide the audit committee with any information they become aware of during the audit that will help the committee understand the rationale and evidence the auditors relied on when making significant professional judgments.
They will also need to give the committee their insights about the client’s internal control system.
The FRC also wants to see improved board communications. The changes will require boards to set out in the annual report – on a “comply or explain” basis – why they consider the annual report to be fair, balanced and understandable and how it provides the information necessary for users to assess the company’s performance, business model and strategy.
Boards will have to include information about the work of the audit committee in discharging its responsibilities, including the significant issues it considered in relation to the financial statements and how it addressed them.
Finally, the FRC proposes to require the auditor to report by exception in two instances: if the board’s statement about the fairness of the annual report is inconsistent with the knowledge that the auditor has acquired in the course of performing the audit; or if the matters disclosed in the audit committee report do not appropriately address matters communicated by the auditor to the committee.
The deadline for comments on the exposure draft is 13 July. They should be sent to firstname.lastname@example.org
Since the revisions to the auditing standards reflect the proposed amendments to the UK corporate governance and stewardship codes, the FRC has set a similar implementation date.
The changes will therefore apply for reporting periods starting on or after 1 October 2012.