Auditing and Assurance Standards and Guidance

Auditing Standards (UK)

FRC ISAs (UK) applicable for periods beginning on or after 17 June 2016 in the UK

FRC Scope and Authority of Audit and Assurance Pronouncements (June 2016)

Nature and Scope of FRC Audit and Assurance Pronouncements

1.	Audit and assurance pronouncements issued by the FRC include:

Quality control standards for firms that perform audits of financial statements, report in connection with investment circulars, provide assurance on client assets or reviews of interim financial information by the auditor,

Ethical and engagement standards for audits of financial statements, reports in connection with investment circulars, engagements to provide assurance on client assets and reviews of interim financial information by the auditor, and

Guidance for auditors of financial statements, reporting accountants and auditors involved in other assurance engagements.

The structure of the audit and assurance pronouncements is shown in the Appendix.

2.	Auditors and reporting accountants should not claim compliance with the FRC's audit and assurance or ethical standards unless they have complied fully with all of those standards relevant to an engagement.

Quality control standards and engagement standards for audits of financial statements (the International Standards on Quality Control (ISQC) (UK) and the International Standards on Auditing (ISAs) (UK)) and the engagement standard to provide assurance on client assets include objectives for the auditor, together with requirements¹ and related application and other explanatory material. The Ethical Standard contains overarching ethical principles and supporting ethical provisions, the ethical outcomes of which are required to be met, together with requirements¹ and related application and other explanatory material. It is necessary to have an understanding of the entire text of a standard, including its guidance, to understand its objectives, overarching ethical principles or supporting ethical provisions (as applicable) and to apply its requirements properly. Further explanation of the scope, authority and structure of the engagement standards are set out in ISA (UK) 200 (Revised June 2016), Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing (UK).

Engagement standards for reporting accountants acting in connection with an investment circular (the Standards for Investment Reporting (SIRs)) and the engagement standard for reviews of interim financial information by the auditor contain requirements, basic principles and essential procedures (identified in bold type lettering²) together with related guidance. The requirements, basic principles and essential procedures are to be understood and applied in the context of the explanatory and other material that provide guidance for their application. It is therefore necessary to consider the whole text of a standard to understand and apply the requirements, basic principles and essential procedures properly.

The ISAs (UK) and ISQC (UK) 1 are based on the corresponding international standards issued by the International Auditing and Assurance Standards Board³ (IAASB). Where necessary, the international standards have been augmented with additional requirements to address specific UK legal and regulatory requirements; and additional guidance that is appropriate in the UK national legislative, cultural and business context. This additional material is clearly differentiated from the original text of the international standards by the use of grey shading. Requirements derived from the European Audit Regulation⁴ and Directive⁵ are designated by the letter "R" or "D" respectively⁶. ISAs (UK) are consistent with International Standards on Auditing as issued by the IAASB and the requirements of ISAs (UK) do not conflict with the requirements in ISAs. An audit conducted in accordance with ISAs (UK) does not therefore preclude the auditor from being able to assert compliance with International Standards on Auditing issued by the IAASB.

6.	Requirements in the Audit Regulation contained in the Ethical and Auditing Standards, which are applicable to the audit of Public Interest Entities are applicable to those entities as defined in Article 2 (13) of Directive 2006/43/EC as amended.

For the audit of UK groups, the group auditor needs to be satisfied that the audit of the group financial statements, on which the group auditor gives an audit opinion, is in accordance with the ISAs (UK). Auditors of overseas components are not required to have regard to the additional requirements and guidance material in those standards, although the group auditor may decide to refer to it in their instructions to component auditors⁷.

The ISAs and ISQC 1, as issued by the IAASB, require compliance with 'relevant ethical requirements' which are described, in the application material, as ordinarily comprising Parts A and B of the International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants (the IESBA Code⁸) related to an audit of financial statements together with national requirements that are more restrictive. The ISAs (UK) and ISQC (UK) 1 have supplementary material that makes clear that auditors in the UK are subject to ethical requirements from two sources: the FRC's Ethical Standard, and the ethical pronouncements established by the auditor's relevant professional body.

9.	ISQC (UK) 1 also has supplementary material that makes clear that the Ethical Standard applies to all other public interest assurance engagements that are undertaken in compliance with performance standards issued by the FRC, which comprise:

Reporting accountants acting in connection with an investment circular (the Standards for Investment Reporting – SIRs),

Reviews of interim financial information by the independent auditor of the entity (International Standard on Review Engagement (UK and Ireland) 2410), and

Engagements to provide assurance on client assets to the Financial Conduct Authority (the Client Asset Assurance Standard).

10.	The Ethical Standard was developed with the intent that it should adhere to the principles of the IESBA Code.

¹ The level of authority of the text in requirements paragraphs is identified by use of the term "shall" (e.g. 'the auditor shall …').

² The level of authority of the text in these paragraphs is identified by use of the expression "the auditor should …".in the SIRs and the standard for reviews of interim financial information; and by use of the expression "the auditor shall …" in the standard for engagements to provide assurance on client assets.

³ IAASB is a committee of the International Federation of Accountants (IFAC). The IAASB's constitution and due process is described in its 'Preface to the International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services'.

⁴ Regulation (EU) No 537/2014 of the European Parliament and the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities.

⁵ Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, as amended by Directive 2014/56/EU.

⁶ The same convention has been used for the numbering of the Ethical Standard.

⁷ If the auditor of an overseas component is a part of the same firm as the group auditor (i.e. the same legal entity) consideration needs to be given to whether the auditor of the overseas component has the same legal obligations as the group auditor and, therefore, is required to comply with the legal or regulatory requirements of the ISAs (UK). If such obligations exist, consideration needs to be given to the implications for communication between the group auditor and component auditor (for example where necessary to fulfil obligations for reporting money laundering offences or reporting matters to a regulator).

⁸ The IESBA Code is included in the IFAC "Handbook of the Code of Ethics for Professional Accountants" and can be downloaded free of charge from the publications section of the IAASB website (www.ifac.org/IAASB).