Auditors’ work on the Other Information (OI) section of company reports outside of the financial statements do not meet the requirements of Auditing Standards consistently, according to the UK’s Financial Reporting Council (FRC).
The FRC’s audit quality thematic review on OI in its annual report found that inconsistency in the extent of the work in part reflected the non-perspective requirements in the Audit Standards.
The report found firms’ own guidance to their auditors ‘lacks prescription’, which has led to different approaches being taken to this work by different audit teams within the same firm.
It was noted that the amount of information included in the OI has grown significantly, and in most cases it is now larger than the financial statements themselves.
If this information is materially mis-stated it can undermine the credibility of the audited financial statements or may ‘inappropriately influence the decisions of users of the annual report’.
The FRC’s acting executive director for audit Mike Suffield 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 methods it expected auditors to implement in order to improve their quality and consistency of their work on OI:
- Undertake more targeted procedures, based upon more prescriptive guidance from audit firms;
- Place greater emphasis on their review of key non-financial information;
- Increase their scepticism and pay more attention to the completeness of information;
- Require Boards to prepare, on a timely basis, appropriate documentation to support key areas of the OI; and
- Ensure staff with appropriate experience and knowledge to identify potential material misstatements and inconsistencies are assigned to review the OI.
