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Auditors told to improve work on ‘front ends’, says FRC.
06 December 2018
The Financial Reporting Council has told auditors that their work on the Other Information section of company reports is inconsistent regarding the requirements of Auditing Standards.
Investors use Other Information, often called ‘front ends’, extensively as it aids in evaluating a company’s future. This has led to an increase in the amount of information featured within this section of the report, often exceeding the size of the actual financial statements they accompany.
Misstating Other Information can undermine the credibility of the audited financial statements or inappropriately influence the decisions of users of Annual Reports.
Although the FRC acknowledged good practice had taken place, they insisted that there were too many examples of insufficient work to support statements.
Mike Suffield, Acting Executive Director for audit at the FRC, stated: “Auditors must improve the extend and quality of the work that they perform on the front end of the annual report. The FRC will review the requirements on auditors in this area in Auditing Standards, as part of its current project reviewing Auditing Standards, to see what changes are necessary to help improve the work carried out.
“We will also consider in detail the requirements for assurance over information included in the front end as part of our recently announced project on the future of corporate reporting.”
The FRC supposes that auditors improve their work by applying the following:
- Assuming more pointed measures, founded on more prescriptive guidance from audit firms.
- Adding a larger prominence on the review of important non-financial information.
- Increase their scepticism and pay more attention to the completeness of information, particularly in relation to principal risk disclosures and their linkage to Viability Statements.
- Require Boards to prepare, on a timely basis, appropriate documentation to support key areas of the Other Information such as the Viability Statement; and ensure staff have appropriate experience and knowledge to identify potential material misstatements and inconsistencies are assigned to review the Other Information.
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