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These include risks related to the current economic environment for example: going concern, impairment, recoverability and recognition of tax assets/liabilities

The priority sectors are construction and materials, food producers, gas, water and multi-utilities, industrial metals and mining and retail.

These priority sectors are only one risk factor amongst the many which the FRC takes into account when making selections.

The financial services sector, including banking and insurance, continues to be a focus of reviews and is included annually in the selections made.

Furthermore, the FRC has announced a number of programmes of corporate reporting reviews and audit quality inspections.

These include risks related to the current economic environment for example: going concern, impairment, recoverability and recognition of tax assets/liabilities.

The FRC will also prioritise climate related risks, including TCFD disclosures, implementation of IFRS 17 – insurance contracts and cash flow statements.

Writes Liam J Moran in Accountancy Today

The FRC has confirmed its plan to scale back audit changes by taking forward under half of the original 18 proposals it set out in the consultation with its stakeholders.

It intends to publish an updated code in January 2024

The news comes after His Majesty’s Speech to the Parliament did not prioritise the primary legislation to modernise the regulation of audit, corporate reporting and governance.

Despite the move FRC stated that there is “broad stakeholder consensus” that this reform continues to be “necessary to restore investor and public trust” following the of several high-profile businesses including Carillion, BHS and Thomas Cook.

The FRC aims to enhance the quality of audit and corporate reporting and governance, whilst supporting the UK’s economic growth and its international competitiveness and the government’s broader ambition of making the UK “the best place in the world to start, grow and invest in a business”.

Under the new revised code:

• There will be a small number of changes that streamline and reduce duplication associated with the code that were overwhelmingly supported by stakeholders in the interests of reducing burdens.
• The main substantive change the FRC will take forward concerns revisions to its original proposal on internal controls. The decision has been informed by “very helpful” stakeholder feedback to ensure it ends up with a more targeted and proportionate code revision. This includes allowing more time for its implementation and ensuring the UK approach clearly differentiates from the much more intrusive approach adopted in the US.

However, The FRC will not take forward the remainder, over half, of the original proposals. These include:

• Those relating to the role of audit committees on environmental and social governance and modifications to existing code provisions around diversity, over-boarding, and Committee Chairs engaging with shareholders.
• A number of other proposals as a result of the Government’s recent decision to withdraw its Statutory Instrument relating to an audit and assurance policy, reporting on distributable profits and resilience statement requirements.

It intends to publish an updated code in January 2024. However, the FRC is conscious that some stakeholders have raised concerns about how its guidance issued under the code can have unintended effects on businesses, investors and their advisers.

To help tackle this, from January 2024, the FRC intends to give an additional remit to its Stakeholder Insight Group to provide the FRC with advice on whether there are aspects of its current and planned guidance associated with the code that could be improved to ensure the right balance is struck between supporting effective governance and reducing unnecessary burdens.

The group’s membership consists of a mixture of investors, preparers, advisors and related membership bodies. It will report on this additional remit directly to the FRC CEO.

Richard Moriarty, FRC CEO, said: “Once the updated UK Governance Code is issued in January 2024, we will as our next priority start to engage with stakeholders on how best to review the Stewardship Code, including understanding how it works in practice and what changes may be required going forward to ensure it remains fit for purpose. In doing so, we recognise the need to engage closely with other regulators who also have an interest in the operation of this Code.”

The news comes after ICAEW criticised the exclusion of an audit and corporate governance reform bill from the King’s Speech.

Writes Accountancy Today

The Financial Reporting Council (FRC) has launched a consultation to strengthen auditor requirements to detect and report material misstatements from non-compliance with laws and regulations and to clarify instances auditors should report such breaches, and other significant matters, to the relevant regulators.

This will enhance the useability and informativeness of the audit and provide greater assurance to users of financial statements that potential material misstatements have been properly assessed by the auditor.

The FRC is consulting on strengthening both ISA (UK) 250 Section A and ISA (UK) 250 Section B.

According to ISA (UK) 250 (Revised November 2019) Section A, non-compliance with laws and regulations can result in potential fines, litigation or other consequences which could have a material effect on the audited entity. 

Auditors will be expected to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, arising from non-compliance with laws and regulations. 

The FRC acknowledges that the auditor’s responsibilities cannot be open-ended to the effect of identifying and determining compliance with all laws and regulations relating to the entity. To assist, a more robust risk assessment process will be introduced to help auditors identify those laws and regulations that have, or may potentially have, a material effect on the financial statements.

Meanwhile, the changes to ISA (UK) 250B build on existing UK laws whereby auditors of public interest entities are expected to comply with statutory duties to report to regulators if significant matters relevant to the regulator, such as breaches in law or regulation, come to the auditor’s attention. 

The FRC is proposing to introduce a more principles-based approach so that information that is of such significance is reported to regulators even where law, regulation or relevant ethical requirements do not require it.

For both standards, the FRC is proposing an effective date for audits of financial statements for periods beginning on or after 15 December 2024. The FRC consultation will close on Friday 12 January 2024.

The FRC’s executive director of regulatory standards Mark Babington said: “A key role of auditors is to consider the risks posted where an entity they audit fails to comply with material obligations in law or regulation, that could impact that entity’s future prospects.

“Enhancing auditor requirements in this area will provide users of financial reports and accounts with improved confidence that risks which could have an impact on a company are being appropriately managed and reported.”

Writes Accountancy Today

The MOURA will provide a process for auditors who have obtained professional audit qualifications in either the UK or New Zealand to apply for recognition of their qualification and audit rights in the other nation.

The UK and New Zealand have signed a first of its kind agreement to recognise audit qualifications in both the UK and NZ so that auditors can more easily work between both countries.

The Memorandum of Understanding on Reciprocal Arrangements (MOURA) was signed by the UK’s Financial Reporting Council (FRC) and the NZ Financial Markets Authority (FMA) – the competent audit authorities for each country.

The UK and New Zealand signed a free trade agreement in February 2022 which included an annex on recognition of professional qualifications, encouraging regulators to establish routes to recognition and remove costly and burdensome requirements.

The FRC was awarded funding through the Department of Business and Trade’s Recognition Arrangements Grant Programme, making it possible to analyse the compatibility of UK and NZ professional qualifications. The funding is part of the government’s plans to encourage UK regulators and professional bodies in all sectors to agree recognition arrangements.

The MOURA will provide a process for auditors who have obtained professional audit qualifications in either the UK or New Zealand to apply for recognition of their qualification and audit rights in the other nation.

The agreement follows detailed analysis by both the FRC and the FMA to ensure the approved qualifications affords an assurance of professional competence equivalent to that afforded by a recognised professional qualification. Where applicable, applicants are required to complete aptitude tests or a period of adaptation.

The FRC said the MOURA will improve the quality of the UK and New Zealand audit markets by increasing the size of the talent pool over time and supports the interests of UK and New Zealand accounting firms and professional bodies. The agreement will help to deliver a more resilient audit market in the UK and New Zealand through greater competition and choice and by enabling skilled auditors to have their qualifications recognised and so move more easily between the UK and New Zealand.

The FRC is currently exploring similar arrangements with other countries that are important markets to the UK, to further widen the audit talent pool, subject to thorough assessments of the qualifications.

The FRC’s Acting CEO and Executive Director of Supervision, Sarah Rapson said: “The FRC welcomes this first of its kind agreement which will attract auditors to the UK, strengthen audit relations between the UK and NZ and supports the Government’s commitment to recognise professional qualifications internationally.

It ensures a more efficient pathway for senior auditors to work in both countries, boosting access to a wider pool of auditors, while upholding the high professional standards expected of auditors.”

Commenting on the news, Mike Suffield, director of Policy and Insights at ACCA, said: “ACCA welcomes the UK and New Zealand audit authorities agreeing mutual recognition of audit qualifications. It is good to see the work the two bodies have done to assess professional competence.

“Over time this memorandum of understanding (MoU) should increase the supply of high quality auditors for both economies. This is important at a time when audit talent globally is increasingly in short supply. This will in turn support the continued efforts from the respective regulators of the two countries to drive high quality audit in the public interest.”

He added: “This builds on the professional ties between the two countries, and helps embed the value of the strategic alliance between ACCA and Chartered Accountants ANZ which works to increase the flow of qualified accountants, including auditors, between the two countries.”

Article appreaed in Accountancy Today.