To the letter
Engagement letters and other client communications need updating to reflect new UK GAAP terminology, and to remind clients of their responsibilities. Lesley Meall conducts an impact assessment.
As firms prepare to audit the new UK GAAP they face a broad spectrum of challenges. At one end, The Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) brings technical challenges, such as the need to audit assets and liabilities for which appropriate audit evidence may be more difficult to obtain. At the other end of the spectrum, new threats to independence and the need for more robust safeguards will be created by requests from audit clients for transition advice and guidance. Because of these and other changes, firms will need to look at their audit methodologies, working papers, pro forma financial statements, and their engagement, representation and management letters.
As the International Financial Reporting Standard (IFRS) for small and medium-sized entities (SMEs) is the basis for FRS 102, so is the language it uses. The terminology used throughout the new standard is different to the previous UK GAAP and it also differs to the terminology used in the Companies Act 2006.
The new terminology in the standard does not necessarily have to be used in financial statements produced under FRS 102, but this is not always helpful to auditors. They will all need to become familiar with the IFRS-style language, because some audit entities will choose to use the new terminology in their financial statements and some will choose not to. Across their client base, auditors may need to accommodate both sets of terminology, like many software applications (which give the option to use new or old UK GAAP terminology).
The main training organisations are updating audit working papers and electronic systems to change the wording of audit tests and examples (and changing procedures too, where necessary). Even so, smaller firms and technical departments may have their work cut out. They will need to confirm that the software and audit methodologies they use, and their client communications, reflect changes in terminology and reference the new financial reporting framework, where relevant.
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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