FRC consultation on Audit Quality issues – ShareSoc/UKSA joint response

ShareSoc News Item, by Cliff Weight, Director.

Proposal to adopt ISQM (UK) 1 Quality Management For Firms That Perform Audits Or Reviews Of Financial Statements, Or Other Assurance Or Related Services Engagements, ISQM (UK) 2 Engagement Quality Reviews, and revise ISA (UK) 220 (Revised November 2019) Quality Control For An Audit Of Financial Statements

ShareSoc and UKSA made a joint response to this FRC consultation. The key points we made were:

  1. We believe most shareholders look to audits of annual financial statements to underpin their confidence and trust in their companies, management and the numbers they report. It appears that the majority of the thousands of audits each year are carried out at an adequate quality level and many are almost certainly good. However, we are mindful of the conclusions from the FRC’s July 2020 summary of audit inspections that firms are still not consistently achieving the necessary level of audit quality and it is clear that further progress is required. We recognise that it is difficult to assess audit quality and easier to assess insufficient or lack of quality, especially when this is only indicated by regulatory monitoring inspections or things going wrong afterwards. As a result, a quality audit will be one where confidence and trust of shareholders is not undermined by subsequent events that point to those audited financial statements being not worth the paper they are written on. We welcome the FRC’s move to tighten up the UK’s audit quality management standards.
  2. The AGM is the best opportunity for shareholders, unless for example conflicting AGMs prevent attendance, to question the Chair, Audit Committee Chair and the Auditor about audit and accounting judgments, and potential risks – both those that have been highlighted to the Board by the Auditor and ones where shareholders have concerns.

The full response is available here FRC consultation on proposal to revise the UK’s quality management standards – UKSA and ShareSoc response FINAL CLEAN 19.3.21

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