Auditors have been ordered to do more to spot fraud in company accounts by the UK accounting regulator, the Financial Reporting Council (FRC). The move follows a series of accounting scandals at companies including Patisserie Valarie, Carillion and London Capital and Finance.
The new standard “makes auditors’ obligations clearer, enhances the risk assessment they carry out, and sets clearer requirements for what the auditor then does.”
The FRC has published a revised UK auditing standard, known as ISA (UK) 240. This sets out additional requirements for auditors to identify and assess the risk of material misstatement in company accounts due to fraud. It also sets out procedures for auditors to respond to those risks.
FRC Executive Director of Regulatory Standards, Mark Babington, says the new standard “makes auditors’ obligations clearer, enhances the risk assessment they carry out, and sets clearer requirements for what the auditor then does.” This could include bringing in specialist practitioners to conduct further investigations when they suspect fraud.
Paul Stephenson, managing partner for audit & assurance at Deloitte, welcomed the new standard. He told Accountancy Age: “We recognise that auditors have an important responsibility in identifying material fraud. We are supportive of strengthening both fraud awareness and auditor challenge in the profession through qualifications and continued development.”
James Burgoyne, Divisional Director – Claims & Technical, Brunel Professions said: “These new regulations raise the bar for auditors, and will be part of the analysis of the Courts in determining negligence. Professional indemnity insurers have experienced significant exposures from audit work, and will expect auditors to have effective risk management procedures to minimise and manage these risks.”
Brunel secures competitive professional indemnity insurance cover for financial services professionals. To find out more visit the Brunel website or call Mark Sommariva on 0203 475 3275.