The UK Financial Reporting Council (FRC) has issued revised International Standards on Auditing (ISAs) primarily to support changes to the UK Corporate Governance Code for Audit Committees and the Stewardship Code.
FRC Board member and chairman of the Audit and Assurance Council Nick Land said the aim of the revisions is to “continue the FRC’s work on enhancing effective company stewardship and stimulate greater transparency about the judgments made by boards and auditors”.
The changes take two main directions. The first is to require the auditor to communicate information to the audit committee that they believe may be needed to understand the judgements made in the audit, and thus to enhance auditor communications.
The second is to require the auditor to report, by exception, “if the board’s statement that the annual report is fair, balanced and understandable is inconsistent with the knowledge required by the auditor in the course of performing the audit,” or if matters communicated by the auditor are not appropriately addressed by the audit committee’s report.
Revisions have also been made to allow the use of those standards in the Republic of Ireland, and to more fully align the requirements of ISAs (UK and Ireland) 705 and 706 with ISA (UK and Ireland) 700, which Land said would “enable Irish auditors’ reports to be more concise and more relevant.”
The revised standards will give effect to proposals published in September 2011 in the FRC’s Effective Company Stewardship: Next Steps, and will come into effect for audits of financial statements for periods commencing on or after 1 October.