For periods commencing on or after 15 December 2019, all auditors (where ISAs (UK) apply) are required to explain in the auditor’s report the extent to which the audit was considered capable of detecting irregularities, including fraud.
The FRC has encouraged auditors to provide an explanation that reports matters of significance clearly and concisely, and that is focused on those laws and regulations that the auditor identified as being of significance in the context of the entity. The FRC also encourages these explanations to be tailored to the circumstances of each audit, and seeks to avoid ‘boilerplate’ wording. But starting with a ‘blank piece of paper’ in the first year of reporting might be daunting for some.
With this in mind, ICAEW’s Audit and Assurance Faculty has produced a second Know-How guide on this topic, providing practical considerations for auditors who are required to report on irregularities, including fraud, for the first time.
This guide was prepared with auditors of Small and Medium-sized Entities/Enterprises (‘SMEs’) in mind, but its principles will also apply to other entities, including Public Interest Entities (PIEs).
This guide supplements the Faculty’s introductory guide, 'How to report on irregularities, including fraud, in the auditor’s report – a guide for auditors', and presents a series of questions to aid the auditor’s thought process around what laws and regulations are significant to the entity, and therefore what the explanation might focus on.
Auditors should not necessarily look to include everything in this guide that applies to their particular audit – the explanation should remain clear and concise – but the considerations included in this guide seek to help remind the auditor of the areas to consider. The auditor will need to apply their judgment in deciding which areas are significant to their particular audit and therefore what to include in their explanation. Inclusion of everything that applies to the audit, is unlikely to lead to an explanation that is sufficiently focused to be most useful to a reader.
The full guide is available here.
Visit ICAEW’s Audit and Assurance page for information and guidance on technical and practical matters in relation to these three areas of practice.