FRC sets out new strategic focus to ensure audit serves the public interest
The Financial Reporting Council (FRC) has today announced a strategic programme of work to ensure audit better serves the public interest. This programme encompasses work on auditor independence, audit quality, the future needs of investors and corporate viability.
Developments in Audit (PDF) is a “state of the nation” review for audit in the UK. It highlights key themes and issues and provides a robust evidence base to allow for an informed debate about the future of audit. These themes include:
Public confidence in audit depends on confidence in the independence of the auditor. The FRC will, as part of a comprehensive review of the 2016 auditing and ethical standards, test the effectiveness of the rules on independence. The review will include determining whether further actions are needed to prevent auditor independence being compromised, including whether all consulting work for bodies they audit should be banned. The FRC will work closely with the Competition and Markets Authority (CMA) in this area.
Taking lessons from recent company failures the FRC will develop proposals to strengthen requirements on auditors when considering whether an organisation is a going concern. This includes whether the responsibilities of auditors in assessing companies’ statements on their longer-term viability should be enhanced and whether auditors should report publicly on their views of the realism of assessments made by companies.
The FRC is undertaking a review of the work auditors do on the front half of the annual report to assess whether auditors are undertaking enough work to conclude it is not materially misstated. The FRC will shortly launch a major review of stakeholders’ needs for information in corporate reports and will consider to what extent such information needs to be assured.
FRC has adopted an enhanced programme of audit firm monitoring. We have also strengthened our enforcement capacity so that we can conclude cases more quickly and revised our sanctions framework to levy penalties that reflect the gravity of the issue.
Stephen Haddrill, CEO FRC said:
“This comprehensive reform programme addresses fundamental issues underlying falling trust in business and the effectiveness of audit, whilst also looking to ensure that the requirements on what companies say about themselves are fit for the future needs of stakeholders. If stakeholders are to have confidence in audit, they also need to have confidence in audit rules and regulation.
“The FRC has reviewed how we can improve audit quality and our supervision of audit firms.In addition to the programme set out today we look forward to proposals from Sir John Kingman and the CMA.”
Notes to editors:
The FRC’s mission is to promote transparency and integrity in business. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.