Vale & West Chartered Accountants Blog

New reporting code sees auditors place greater emphasis on risk assessment and scrutiny

The proposed revision of the UK Standard: Auditing Accounting Estimates and Related Disclosures framework will be of “particular significance for banks”, the Financial Reporting Council has revealed.

Launching a consultation today, the auditing watchdog said the changes to the code reflect revisions made by the International Auditing and Assurance Standards Board (IAASB).

According to the report, the revisions will address issues arising from evolving financial reporting frameworks, “particularly the move to accounting for financial instruments on an expected loss basis”.

The measures form part of the FRC’s bid to evolve the UK’s financial reporting framework and keep pace with an increase in the volume and complexity of accounting judgements and related disclosures.

The FRC says the current code lacks appropriate risk assessment, as auditors should be required to apply a “higher benchmark in assessing the adequacy of disclosures”.

It says the improvements will be important to financial services audits, particularly when dealing with expected credit losses, as well as dealing with new accounting standards for revenue recognition and insurance contracts.

Melanie Hind, the FRC’s Executive Director of Audit and Actuarial Regulation said: “The UK supports the development and adoption of high quality global standards for corporate reporting and audit, enabling the UK to attract high quality global investment.  Changes to accounting standards have increased the significance of estimates in financial statements. This standard provides a comprehensive and principles-based approach to delivering audits of estimates and related disclosures to a standard that meets the needs of users, and protects the public interest.”

The consultation is open to feedback until 21 September 2018, after which it will be withdrawn for consideration.

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