FRC publishes ‘significant’ amendment to audit standard

By:Naomi Rainey,

The Financial Reporting Council (FRC) has published a “significant amendment” to auditing standards, aimed at improving transparency of financial statements.

Following a consultation, the revisions to ISA 700 (UK and Ireland), The Independent Auditor's Report on Financial Statements, have been adopted with minor amendments, following "strong support" from respondents.

The changes require companies applying the UK Corporate Governance Code to provide more information about their work. This includes providing an overview of the scope of the audit, demonstrating how risk and materiality considerations have been addressed.

Further details are required regarding risk and the audit process, including strategy and allocation of resources, as well as "how they applied the concept of materiality in planning and performing the audit".

The revised standard has been implemented to support changes to the UK Corporate Governance Code in October 2012, and therefore will be effective for financial reports from this date. Practical guidance will be provided for companies and investors through an FRC Financial Reporting Lab project.

FRC Audit and Assurance Council chairman Nick Land (pictured) said: "I am pleased that auditors as well as investors have given their enthusiastic support for the proposal in the consultation paper to supplement the binary pass/fail model of audit report.

"The provision of a fuller description of the work the auditor has undertaken will give far more insight to investors than the binary pass/fail model of the current audit report. The improved report will be a better basis for engagement by investors with companies, and we encourage auditors and companies to work together to develop succinct communication to do so."

Last month, the FRC launched two Accountancy Scheme investigations into KPMG Audit's conduct in its audit of Pendragon and potential breaches of the Ethical Standards for Auditors in relation unnamed KPMG member