Adrian JohnsonTLDR: The Association of Chartered Certified Accountants (ACCA) supports proposals put forth by the Financial Reporting Council (FRC) to strengthen auditor requirements. The proposed enhancements focus on material misstatements arising from non-compliance, the introduction of a risk assessment process, and the switch to an outcome-based approach. ACCA believes these proposals will enhance transparency, accountability, and stakeholder confidence in financial reporting.
The Financial Reporting Council (FRC) aims to strengthen auditor requirements in order to improve audit quality and instill confidence in financial statements. The proposed enhancements focus on detecting and reporting material misstatements arising from non-compliance with laws and regulations. ACCA supports these proposals and believes they will provide users of financial statements with greater assurance.
The FRC is proposing updates to ISA (UK) 250 and ISA (UK) 2X0 to reinforce auditor responsibilities in identifying and reporting material misstatements resulting from non-compliance. By updating these standards, the FRC intends to provide users of financial statements with a more comprehensive assessment of potential misstatements.
ACCA supports the need for auditors to consider and address relevant laws and regulations, as it promotes transparency and accountability. The proposed changes acknowledge the importance of focusing on the laws and regulations that are most likely to have a material impact on the financial statements.
To assist auditors in identifying relevant laws and regulations, the FRC is introducing a more robust risk assessment process. This process will enable auditors to allocate resources effectively and exercise professional judgment when identifying and addressing compliance issues. While ACCA supports these updates, it urges the FRC to consider the potential impact on auditors’ workload.
The FRC’s proposed switch from a procedural approach to an outcome-based approach is a significant aspect of the enhancements. This shift allows auditors greater flexibility and discretion in their assessment of materiality and likelihood of misstatements arising from non-compliance. Auditors can exercise comprehensive professional judgment, resulting in a more effective and efficient audit process.
ACCA acknowledges the resource constraints faced by smaller entities, but emphasizes the need for the proposed changes to apply to listed entities as well. ACCA believes that the practical guidance offered by ISA (UK) 2X0 on identifying and addressing suspicions of non-compliance would be valuable for auditors of listed entities.
The revised ISA is set to come into effect for audits of financial statements for periods commencing on or after December 15, 2024. ACCA encourages auditors to familiarize themselves with the proposed changes and begin incorporating them into their audit processes well in advance of the implementation date.
