Investors welcome extended auditor reporting

INVESTORS have cheered improvements in extended auditor reporting for providing greater information and understanding of the state of their businesses, the FRC has found.

Auditors continued to develop high quality, accessible reports in the second year of extended auditor reporting according to an FRC survey Extended auditor’s reports: A further review of experience.

In particular, reports which have earned the greatest praise from investors tend to be well structured, signpost key information and often make innovative use of graphics, diagrams and colour.

Auditors, the review found, have continued to move away from generic language and descriptions of risk, making their reports more relevant and insightful, while descriptions of the scope of audit work and the approach to materiality continue to improve.

Areas where auditor’s reports could be further enhanced include more frequent inclusion of commentary about what the auditor found as a result of the work done on risks of misstatement; explanations of changes to the audit approach, materiality or risk assessment over time; more auditors to include information about ‘performance materiality’ – how it is derived and how it impacts on the audit.

The FRC introduced new reporting requirements for financial years beginning on or after 1 October 2012 at the same time as enhancements to the UK Corporate Governance Code, including more detailed annual reporting by audit committees.

Executive director for codes and standards Melanie McLaren said: “Confidence in UK audits underpins investor confidence in UK capital markets and we are pleased that we have led the way internationally in extended auditor reporting, which is being adopted more widely following changes to international standards on auditing.