The U.K. Financial Reporting Council (FRC) is the latest regulator to propose standard changes that would require auditors to play a larger role in detecting and reporting instances of noncompliance when reviewing company financial statements.
The FRC announced it launched a consultation on amendments to Sections A and B of its ISA (UK) 250 standard. The regulator is proposing the changes to “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,” it said in a press release Wednesday.
The proposals are similar in goal to those put forward by the Public Company Accounting Oversight Board in June. The U.S. regulator has also made clear its desire to see auditors enhance scrutiny toward potential instances of company noncompliance, including fraud, in their audit work.
Changes to Section A of the U.K. standard would require auditors to obtain reasonable assurance that financial statements are free from material misstatements arising from noncompliance with laws and regulations. The FRC’s proposed revisions to Section B would require auditors report to regulators breaches in law or regulation that come to their attention, “even where law, regulation, or relevant ethical requirements do not require it.”
“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,” said FRC Executive Director of Regulatory Standards Mark Babington in the release. “… 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.”
The FRC’s consultation will close in January. If adopted, the regulator’s changes to each section would be scheduled to take place for audits of financial statements for periods beginning on or after Dec. 15, 2024.