As a result of compliance with the new Audit Regulations and Directive (ARD) due to come into force on 17 June 2016 in the UK, pending final enactment of legislation, the FRC has updated 23 of the existing 35 ISAs, with only 12 remaining unchanged. 

Although the standards have been released in 'draft' form, it is understood that this is a due process issue and the current wording is final. The reason for 'draft' labelling is due to the time lag in legislative and regulatory processes being completed. 

The FRC will require a single effective date to apply, and that will be 17 June 2016 (or the date thereafter that the UK implementing regulations are effective, pending legislation).

As the effective date for revised ISAs (UK and Ireland) is later than that used by the International Auditing and Assurance Standards Board (IAASB), the FRC said it plans ‘to permit early adoption of those ISAs amended by the IAASB following the Reporting, Other Information and Disclosures projects, in order to facilitate global audit firms in the update of their materials’.

Catherine Horton, audit policy adviser at the FRC said: ‘The revised ISAs should be seen as a whole package and the guidance has improved around the audit function. This is a package of measures relating to the audit directive.’

In general, the standards have been revised to simplify the language and the application material has been expanded to clarify the inter-relationship between the ISA requirements and the requirements of the directive.

ISA 700

In ISA 700, Independent Auditor's Report on Financial Statements (Revised June 2016), the FRC has simplified the text of the standard, but said that there remains ‘ambiguity over the regulation requirement for the auditor to “explain to what extent the audit was considered capable of detecting irregularities, including fraud”, and whether this requirement should be applied in an entity specific way, or generically’.

The FRC text copies out the ARD language and the FRC continues to work with other European regulators to monitor how this requirement is applied The FRC’s position is to avoid, wherever possible, boiler-plate reporting unless required to comply with law or regulation.

In the feedback statement, FRC stated: ‘Where respondents identified language they considered to be confusing, we have sought to clarify through drafting changes (for instance, by removing references to statutory audits derived from the Directive), and in the case of ISA 701 [Communicating Key Audit Matters in the Independent Auditor's Report], by moving the key audit matters definition contained in a UK plus, to application material. In doing so the FRC hopes to encourage auditors to continue to develop relevant and insightful auditor reports.’

ISA 570 / ISA 700

Redrafting has also focused an eliminating unnecessary overlapping of material and simplifying language, for example in ISA 570 Going Concern and ISA 700, in an effort to clarify the positioning of reporting on material uncertainty within the auditor’s report.

ISA 210

In terms of auditing micro-entities, the FRC will retain the additional application material (paragraph A34-1) in ISA 210 Agreeing the Terms of Audit Engagements (Revised) in the finalised standard, and will withdraw Bulletin 2008/4 The Special Auditor’s Report on abbreviated accounts in the United Kingdom, at the same time.

ISA 720B

ISA 720 B has been withdrawn and the requirements will be integrated into a single standard, IAS 720 (Revised June 2016) The Auditor’s Responsibilities Relating to Other Information.

Cost implications

The cost implication for companies is estimated at £338,000, due to the impact of the implementation of the Regulation and Directive relating to regulatory decisions. Costs arising from complying with legislation are included in the impact assessment prepared by the Department for Business, Innovation and Skills (BIS), and submitted to the Regulatory Policy Committee.

The full list of FRC Revised Auditing Standards (ISAs) 2016 is available at FRC