The FRC has issued a consultation proposing important changes to the UK’s Ethical and Auditing Standards. The FRC proposes to set more stringent ethical rules for auditors, in response to findings from recent audit enforcement cases and from audit inspections.
In response to feedback from investors, the FRC also proposes to enhance the quality and content of auditor’s reports in order to improve transparency about what is found in the course of an audit.
Key changes proposed include:
A clearer and stronger ‘objective, reasonable and informed third party test’ which requires audit firms to consider whether a proposed action would affect their independence from the perspective of public interest stakeholders rather than another auditor. This is supported by additional material to encourage a wide-ranging assessment, which considers both the spirit and the letter of the standard.
Enhancing the authority of the Ethics Partner function within audit firms, in order to ensure firm wide focus on ethical matters and the public interest, and to require reporting to those charged with governance where an audit firm does not follow the Ethics Partner’s advice.
The list of prohibited non-audit services that auditors of Public Interest Entities (PIEs) can provide to audited bodies has been replaced with a much shorter list of permitted services, all of which are ‘closely related’ to an audit or required by law and/or regulation. No other services can be provided.
The requirement for the auditors of all UK listed entities to include in their published auditor’s reports the performance materiality threshold used in the audit.
Further detailed amendments to individual standards clarify the auditor’s responsibilities when considering whether the bodies they have audited are compliant with relevant laws and regulations, and when checking there are no material misstatements in the ‘other information’ companies include in their annual financial reports (other than the financial statements which are subject to audit).
The consultation period closes at 5pm on Friday 27 September 2019.
Full press release
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