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Assessing the threats

Before helping audit entities with their transition to FRS 102, auditors must consider the self-review threat and the management threat. Val Steward outlines why and how.

Some auditors and audit entities may face a steep learning curve during the transition to FRS 102 The Financial Reporting Standard Applicable to the UK and the Republic of Ireland. Management in all companies, including audit entities, will need access to technical knowledge to prepare their FRS 102 compliant financial statements and to make decisions about the accounting policy decisions that they will need to make on first time adoption.

Many companies will not have sufficient knowledge to steer their way through the decisions and transition changes without the expert input of their accountants. When those accountants are also the auditors they need to ensure that they have complied with the requirements of the APB Ethical Standards (ES) and that they are able to demonstrate that the decisions are those of the client.

In some ways, the move to FRS 102 is like any other change in accounting framework. Many of the ethical issues that arise will be familiar to entities (and the auditors of entities) that have moved from UK GAAP to International Financial Reporting Standards. However, the change to FRS 102 affects a greater range of audit entities. Some will be able to manage the transition using internal resources; some will need basic information on the steps they need to take; some will need more guidance.

Small entity, big challenge

Smaller entities are already turning to their auditors for accounting advice and assistance on adoption of the new standard. Both management and auditor have a role to play in achieving successful implementation of FRS 102, but where audit firms become involved they must be cautious. Providing a useful service to clients and demonstrating compliance with the ES (see box overleaf ) are not always incompatible, but auditors

This is an extract from an article in the December 2015 / January 2016 edition of Audit & Beyond, the magazine of the Audit and Assurance Faculty.

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