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Sourcing a new standard

The Financial Reporting Council has spent much of the last year consulting on its Ethical and Auditing Standards. Mark Babington explains the changes.

Change can be a challenge, and dealing with multiple changes can be an even bigger one. Over the last year at the Financial Reporting Council (FRC) we have revised Ethical and Auditing standards to incorporate: changes to ethical standards resulting from a review carried out by the FRC; major revisions to International Standards on Auditing resulting from the completion of three significant projects by the IAASB; and the requirements of the EU Audit Regulation and Directive (ARD). The FRC ethical review was designed to develop a more outcome-based approach.

Trying to incorporate the necessary changes – when a certain number of them overlap, or are not as clearly defined as we might wish – has been a major piece of work for the FRC’s audit and assurance team.

The ARD is developing the FRC response to the financial crisis. Its focus is very much about how to strengthen auditor independence and remove the risks posed by conflicts of interest, particularly for those classes of entities considered to pose the greatest risk – Public Interest entities (PIEs). Implementation takes place partly at the EU level, and partly through being transposed into national law. The FRC has sought to relate the ARD ethical requirements to the new ethical outcomes required by the revised standard.

So, in revising the auditing and ethical standards, the FRC has incorporated all of the relevant requirements into the text of the standards, including all of the ARD requirements, plus revised IAASB requirements, plus changes following an FRC review of ethical matters. This will provide auditors with a single, authoritative source of guidance that if followed will allow auditors to meet all of their obligations set out in the new legislation, as well as those made in response to international and national changes other than those in the ARD.

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

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