Raymond Doherty 6 Dec 2018 02:19pm

Auditors need to improve "front end" work

The Financial Reporting Council say it is not meeting the requirements of auditing standards

The review was on the work done by auditors on the other information (OI) in companies’ annual reports, also known as the “front end”. OI is all financial and non-financial information included in an annual report other than the financial statements and the audited parts of the directors’ remuneration report.

The FRC said investors are increasingly using this information as a way of assessing a company’s prospects, and may use it, along with the financial statements, to support investment decisions in the capital markets.

The FRC examined how the Big Four, BDO and Grant Thornton checked annual reports for the year ended December 2017 at 30 listed companies.

The regulator said it found too many instances where insufficient work was performed to support the statements made by auditors in respect of the OI in their reports.

Mike Suffield, acting executive director for audit at the FRC, said, “Auditors must improve the extent and quality of the work that they perform on the front end of the annual report.
“The FRC will review the requirements on auditors in this area in auditing standards, as part of its current project reviewing auditing standards, to see what changes are necessary to help improve the work carried out.

“We will also consider in detail the requirements for assurance over information included in the front end as part of our recently announced project on the future of corporate reporting.”

The FRC outlined a number of recommendations to improve auditors’ performance, which included: more targeted procedures, based on more prescriptive guidance from audit firms; greater emphasis on their review of key non-financial information; increased scepticism and more attention paid to the completeness of information, particularly in relation to principal risk disclosures and their linkage to viability statements.

In addition, it called on boards to prepare appropriate documentation to support key areas of the OI such as the viability statement; and ensure that staff with the appropriate experience and knowledge to identify potential material misstatements and inconsistencies, are assigned to review the OI.