I hope you have had a relaxing summer holiday and I am delighted to welcome you to read our first edition of Audit Updates after the break!
We have continued monitoring developments related to audit throughout the summer. This edition of the Audit Updates therefore covers not only the latest news but also any key audit developments that occurred in the summer months.
The European Commission (EC) published a feedback statement summarising 588 responses received to the public consultation on the revision of the Non-Financial Reporting Directive (NFRD).
At large, the analysis shows that there is a strong support towards:
The full report is available on the EC’s website here.
The European Commission (EC) published a notice to stakeholders describing the effects of Brexit on the field of statutory audit.
After the end of the transition period, set until 31 December 2020, the European Union (EU) rules in the field of statutory audit will no longer apply to the United Kingdom (UK). The document explains that this has consequences in particular in the following areas:
Important reminder: European Economic Area (EEA) auditors must register as a UK statutory auditor before 1 January 2021 if they are working in the UK and want to sign audit reports in the UK based on their EEA qualification. They can register with one of the UK’s Recognised Supervisory Bodies (RSB). The RSB will require an EEA auditor to sit an aptitude test. There is no need to register in the UK if already registered in the Republic of Ireland.
The above route will cease after the transition period finished (31 December 2020). As from 1 January 2021, EEA auditors will need to register in the UK as third country auditors which is subject to more demanding requirements.
In July, the Monitoring Group published its recommendations to strengthen the international audit-related standard-setting. The recommendations are organised in the following four categories:
The recommendations cover, for example, policy for appointments to and the composition of the different Boards, responsibilities for standard-setting, source and management of funding, and timeline for implementation.
The International Auditing and Assurance Standards Board (IAASB) has issued its latest Discussion Paper which focuses on fraud and going concern. The IAASB aims to gather stakeholders’ views on whether the International Standards on Auditing (ISAs) related to fraud and going concern need to be updated to reflect the rapidly evolving external reporting landscape, and, if so, in what areas. Stakeholders can submit their comments by 12 January 2021.
The IAASB also started information gathering activities related to the topic of fraud and going concern. As part of these, a series of roundtables have been scheduled.
The first one on ‘Fraud in Digital Age’ was held on 2 September 2020. The next will be on 28 September 2020 to explore the ‘Expectation Gap’ related to fraud and going concern in the current environment. Accountancy Europe will participate to the third and last roundtable, scheduled for 7 October, where ‘Unique Aspects of Fraud in Audits of Less Complex Entities’ will be discussed.
In July, the UK Financial Reporting Council (FRC) released its latest audit inspection results.
The FRC’s Audit Quality Review (AQR) team reviewed 88 audits and concluded that two thirds of the audits were of a good standard or required limited improvement. The FRC’s Executive Director of Supervision, David Rule said that although firms have made some improvements and they observed instances of good practice, further progress is required.
The Dutch Authority for the Financial Markets (AFM) published in July the results of the latest assessment on preconditions for the quality of statutory audit.
The report concludes that the Big 4 audit firms are moving in the right direction. According to AFM, the Big 4 firms are focusing on quality improvement and a quality-oriented culture but that quality safeguards still need to be strengthened.
New assessment focusing on achieved quality improvement will begin in 2020.