November 18, 2021
The Financial Reporting Council (FRC) has today published its latest edition of Developments in Audit, which sets out the FRC’s annual assessment of UK audit and ongoing expectations for how audit firms should deliver audit quality improvements to deliver a more effective audit market in the public interest.
In this year’s Developments in Audit, professional scepticism and challenge of management remain the two key areas where deficiencies continue and improvement still needs to be made.
However, it is pleasing to see examples of good practice in the use of internal and external specialists to challenge management’s assumptions, the delaying of audit opinion sign-offs to ensure sufficient time was available and robust challenge of the component auditor’s work by group auditors.
The FRC has over the past year increased the number of inspections of smaller firms which audit public interest entities, and has found 10 of 16 audits reviewed required improvements. This level of quality is unacceptable so the FRC has increased resources dedicated to supervision of the smaller firms to drive those improvements. This week the ground breaking FRC publication of What Makes a Good Audit?, sets out the good practice firms should be following to deliver high quality audit. This guidance will be particularly useful for the smaller firms as they continue to build their capability and capacity.
The report also includes an overview of the FRC’s supervisory work, audit market trends and new UK auditing standards, including the auditor’s responsibilities relating to fraud, which are designed to further improve assurance for users of accounts.
The FRC’s Executive Director of Supervision, Sarah Rapson, said:
“While it is encouraging that today’s report finds some of the audit firms are successfully implementing improvement measures, audit quality remains mixed across the firms.
As we continue to lay the groundwork for establishing a new regulator – the Audit, Reporting and Governance Authority – our continued objective will be to drive all firms to deliver consistent, high-quality audit to the benefit of all stakeholders and the wider public.”