The changes, which will be published by the end of November, include updating the material to take account of developments in the listing rules, corporate governance and reporting and the use of APMs.

The regulator received 14 written responses from seven audit firms, ICAEW and ICAS, three groups representing issuers of preliminary announcements, and two investors. The majority stated that they believe the current regime for preliminaries is fit for purpose and does not require significant change.

As a result the FRC says it is not proposing to convert the current guidance into an engagement standard, and nor will it propose to require auditors to have completed the statutory financial statement audit and sign the auditor’s report before agreeing to the publication of preliminary announcements – although the FRC will continue to highlight the fact that this is best practice and consistent with most current market practice.

Consultation responses to this option varied according, with the audit firms against any such requirement being introduced, arguing that any benefits would not be proportionate to the risks to the reporting timetable, or offering only conditional support, provided that it was based on clear investor demand, and that it applies consistently to all listed entities. While investors preferred the financial statement audit to have been completed first, there were also concerns about maintaining the current reporting timetable.

The majority of respondents did not support the introduction of a mandatory ‘extended auditor’s report’ for preliminary announcements, including investor representatives. The reasons for this included the risk that the inclusion of a form of assurance report in connection with preliminary announcements might be misleading; potential legal complications in connection with companies act requirements; and the investor view that they would not be ‘additive’ in terms of value.

However, investors in particular were in favour of greater clarity about the status of the financial statement audit, and of the procedures carried out in connection with preliminary announcements.  As a result, under the revisions, the FRC will include a draft report in the revised bulletin setting out the status of the financial statement audit, and the procedures performed by the auditor on the preliminary announcement, to be prepared and published on a voluntary basis.

In addition, the majority of respondents highlighted APMS as an area of potential concern to investors, including when used in preliminary announcements. However, there was no overall consensus on actions the FRC could take to help address those concerns, with options including converting the current bulletin into guidance or issuing a new bulletin specifically covering APMs.

The FRC said it recognised the concerns relating to the use of APMs and will therefore revise the guidance to reflect developments since 2007, including the ESMA guidelines to the extent that they are relevant to the auditor’s work on preliminary announcements.

Feedback Statement and Impact Assessment Discussion Paper: Invitation to Comment - Auditors and Preliminary Announcements is here.

Report by Pat Sweet