Update on Audit 01/03, The Audit Report and Auditors' Duty of Care to Third Parties.
The Bannerman wording in Audit 01/03 refers to s235 CA85 which covers all of the opinions given by the directors (i.e. truth and fairness in accordance with applicable financial reporting framework, proper preparation of accounts and directors' remuneration report in accordance with the Act, consistency of directors' report information).
Under the new Companies Act 2006, these duties are spread across s495 (truth and fairness, proper preparation of accounts in accordance with applicable framework, preparation in accordance with the law), s496 (directors' report consistency) and s497 (directors' remuneration report for quoted companies).
Therefore, the disclaimer should now be amended as follows:
This report is made solely to the company's members, as a body, in accordance with [Sections 495 and 496 / Sections 495, 496 and 497*] of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
*Include reference to Section 497 if the company is quoted (see section 385).
Faculty issues guidance on auditors' duty of care to third parties
Firms of all sizes will be assisted by Faculty guidance (Technical Release Audit 1/03) on auditors' duty of care to third parties. The guidance recommends additional wording for auditors to include in audit reports from now on. This recommendation is based on advice the Institute has received from Leading Counsel.
The guidance has been issued following the Bannerman case. Auditors' responsibilities to their clients remain unaltered. The Bannerman case considered the role of audit report wording in clarifying where auditors' responsibilities do not lie and where they do.
Andrew Ratcliffe, Chairman of the Faculty, said: "The value of an audit is undiminished by this new guidance. Auditors still have exactly the same responsibility for their audit reports to the shareholders as a body as they always had. This guidance will be of practical help for members and also helpful to users of financial statements by clarifying the auditors' responsibilities."
Click here for Audit 1/03