Essential Corporate News – Week ending August 19, 2022

FRC: Auditor reporting – A review of current practice

On August 16, 2022 the Financial Reporting Council (FRC) published the results of research into the current state of auditor reporting within the UK. A sample of 396 auditor’s reports for companies in the FTSE 350, as well as large AIM companies, was used to explore their form and content. The findings have been summarised as a series of six ‘snapshots’ to start a dialogue with stakeholders on how auditor’s reports can be further improved.

The research was commissioned in light of the FRC’s undertaking to improve the useability and informativeness of auditor’s reports in its July 2022 Position Paper on Restoring Trust in Audit and Corporate Governance. The FRC has committed to considering the quality, relevance, and accessibility of current market practice, while ensuring that auditor’s reports are as concise as possible.

The six infographic ‘snapshots’ provide an in-depth look at the length and readability of auditors’ reports, as well as how auditors communicate how the audit was performed, the risks they identified, and the responses to those risks. They are as follows:

• Snapshot 1: Understandability and useability of auditor reports
• Snapshot 2: Communicating judgements on materiality and the scope of group audits
• Snapshot 3: Key audit matters
• Snapshot 4: Key audit matters on climate change, COVID-19, alternative performance measures, and graduated findings
• Snapshot 5: Going concern
• Snapshot 6: Fraud and other irregularities

(FRC, Auditor reporting – A review of current practice, 16.08.2022)

FRC: Public Interest Entity Auditor Registration Regulations

On August 18, 2022 the Financial Reporting Council (FRC) published the 'Financial Reporting Council Public Interest Entity ('PIE') Auditor Registration Regulations'. These Regulations provide for a register of firms and individuals approved to undertake statutory audit work for PIEs, and on and from the date that they come into force, no firm or individual may undertake statutory audit work for PIEs unless that firm or individual is registered on the PIE Auditor Register. 

The Regulations will come into force on December 5, 2022 and audit firms currently auditing PIEs will need to apply and be approved to be included on the PIE Audit Register to prevent any disruption to their work. There will be a transition period from September 5, to December 4, 2022 for existing audit firms of PIEs to submit transitional applications.

The Regulations stem from a recommendation in the 2018 Kingman Review and, following that, in the White Paper, ‘Restoring trust in audit and corporate governance’, the Government set out proposals enabling the FRC, as regulator, to reclaim from the Recognised Supervisory Bodies the function of determining whether individuals and firms are eligible to be appointed as statutory auditors of PIEs. The Government made it clear, in its Response to the White Paper, that it would proceed with this proposal to help strengthen the FRC’s ability to hold those it regulates to account and the Regulations seek to achieve this. 

(FRC, Public Interest Entity Auditor Registration Regulations, 18.08.2022)