The Professional Oversight Board of the Financial Reporting Council (FRC) is to continue its greater level of focus on the banking sector will continue in 2011/12. The Board has published a description of those entities whose audits will be deemed to be ‘major audits’ for the purposes of audit inspections in the year from 1 April 2011 to 31 March 2012. Such audits will fall within the scope of the work of its Audit Inspection Unit (AIU). The AIU selects the audits it reviews from this population, using a risk-based approach.
The Board decided last year to bring all UK incorporated banks within the scope of inspection in 2010/11. The Board has also decided to remove the assets threshold previously applied for building societies. All UK building societies will therefore fall within the scope in 2011/12.
The Board has also decided to simplify the definition of UK unquoted companies, limited liability partnerships and industrial and provident societies within scope by applying only a turnover measure from 2011/12.
The Board has agreed that the AIU should have particular regard in 2011/12 to fair value accounting estimates and disclosures, impairment of assets, revenue recognition, related parties and going concern, including whether appropriate professional scepticism has been applied in these areas. It will also place emphasis on the quality of reporting to Audit Committees and assess how the revised Auditing Standards that became effective from December 2010 financial year-ends (clarified ISAs) are being applied by firms and individual audit teams in practice.
Dame Barbara Mills, chair of the Board, said: “Current economic conditions continue to present heightened audit risks in a number of areas and business sectors. The AIU will have particular regard to those risks during its 2011/12 inspections.”
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