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The Financial Reporting Council (FRC) has announced a revision to its auditing standard regarding the responsibilities of auditors relating to fraud.
The changes are intended to produce clarity over auditors’ obligations, and include enhancements to the requirements for the identification and assessment of risk of material misstatement as a result of fraud and what to do in response to said risks.
Effective for audits from 15 December 2021, the revisions follow concerns raised by Sir Donald Brydon in his review of the quality and effectiveness of audit.
Further proposals to “restore trust in audit and corporate governance” are currently being discussed by the Department for Business, Energy, and Industrial Strategy (BEIS).
These include further requirements for directors to lay out the steps they have taken to prevent material fraud, with auditors then following the steps.
Mark Babington, executive director of regulatory standards at the FRC, 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.
“However, sometimes the UK needs to show leadership, and move in advance of international standards to address urgent stakeholder concerns in the public interest – we believe that some of the misunderstandings that have been communicated around the auditor’s responsibilities in respect of fraud meet this test.”
He added: “In response, we have developed a revised standard which makes auditors’ obligations clearer, enhances the risk assessment they carry out, and sets clearer requirements for what the auditor then does.”
