FRC Practice Aid for Audit Committees – May 2015 update

Audit Guidance affecting auditors
For accountants, bankers and audit committees in general there is new guidance from the Financial Reporting Council (FRC) which affects their audit responsibilities.

These changes will also impact anyone who has audit and/or corporate governance responsibility within their organization or for clients. We have many larger corporate clients for whom this is an important accountability point and we support them in staying at the forefront of changes in legislation and/or legal responsibilities.

On the 29th May 2015, the FRC issued a Practice Aid to help audit committees evaluate audit quality in light of section C3 of the UK Corporate Governance Code. (Get your copy here > “May 2015: Practice aid for audit committees”).

C3 requires an audit committee to report how it has assessed the effectiveness of the external audit process. Although this Aid is designed for listed companies, the FRC notes that it may assist other organisations, including those adopting the Code voluntarily.

In brief, it indicates that audit committees should focus more on seeking evidence of quality throughout an audit engagement rather than on the output of the external audit.

It sets out guidance on how this may be achieved and the inputs that could inform the audit committees’ assessment. These input sources include:

  • the views of external parties (including investors and regulators);
  • feedback from the organisation’s management team;
  • the committee’s own observations of and interactions with the auditors; and
  • the committee’s usual oversight of the financial reporting process.

Using these “inputs”, it recommends that the committee should assess the auditors on their:

  • Mindset and culture
  • Skills, character and knowledge
  • Quality control
  • Judgment

Whilst these elements may seem very subjective to make an assessment on, the FRC Practice Aid provides guidance on how the committee may evaluate each of these elements.

If you are not sure how these changes will impact your audit responsibilities in practice, please feel free to contact me on 01604 828 828 or via email. I work with a variety of organisations, from larger global corporations to small to medium sized businesses – so I am able to give you guidance based on your organisation and accountability.

Stock image courtesy of 123rf.com

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About Sarah Canning

Head of the Litigation Department at Franklins which incorporates all aspects of Dispute Resolution Contractual, Property & Partnership/Director/Shareholder disputes. In her "spare" time Sarah is proud to be one of the Northamptonshire Ambassadors; an external member of the University of Northampton's Audit Committee; a board member of Northamptonshire Enterprise Partnership (NEP); and the Chair of the IoD Northamptonshire Branch. Follow her on Twitter here: @SarahJCanning
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