- ACCA backs FRC proposals to allow auditors to focus on laws and regulations that are most likely to have a material impact on the financial statements.
ACCA (the Association of Chartered Certified Accountants) is backing FRC proposals to enhance auditor quality and foster users’ confidence in financial statements.
The FRC – the UK’s accounting regulator – is proposing enhancements to existing requirements. This would strengthen auditor requirements to detect and report material misstatements from non-compliance with laws and regulations, and to clarify instances auditors should report such breaches, and other significant matters, to the relevant regulators.
The FRC says updating ISA (UK) 250 and ISA (UK) 2X0 will enhance the usability and informativeness of the audit and provide greater assurance to users of financial statements that potential material misstatements have been properly assessed by the auditor.
Jessica Bingham, policy and insights lead, (EEMA & UK), ACCA, said: “Enhanced requirements for auditors to consider and address relevant laws and regulations will promote transparency and accountability, ultimately bolstering investor and stakeholder confidence.”
ACCA welcomes FRC’s acknowledgement that auditor’s responsibilities cannot be open-ended in terms of identifying and determining compliance with all laws and regulations relating to the entity.
To assist, the FRC is introducing a more robust risk assessment process. This will help auditors identify those laws and regulations that have, or may potentially have, a material effect on the financial statements.
However, Bingham adds: “ACCA asks that the FRC carefully consider the risk that in practice the impact of the updated requirements could be to shift workload from management to the auditor.”
The FRC is proposing switching from a procedural approach to an outcome-based approach, using risk focused assessment for the identification and assessment of relevant laws and regulations.
ACCA says this gives flexibility and discretion to auditors, allowing them to exercise comprehensive professional judgement to identify the likelihood and materiality of misstatements.
While acknowledging resource issues, ACCA is calling for ISA (UK) 2X0 to apply eventually to listed entities as well as public interest entities.
Bingham said: “We recognise the need to avoid burdening those with limited resources but believe that the proposed application material for ISA (UK) 2X0 appears to be a valuable asset for auditors, offering practical guidance on identifying and addressing suspicions of non-compliance.”
The revised ISA is set to come into effect for audits of financial statements for periods commencing on or after 15 December 2024.
Visit ACCA’s website for more information.