The audit and financial reporting landscape is changing, and fast.
Now, more than ever the quest for ‘audit quality’ is at the forefront of everything auditors do.
This brief article will merely highlight what’s happening in the profession right now and hopefully serves to give some sense of the terrifyingly exciting challenges that lie ahead.
1. ISA 315 revised
The revised standard is effective for all audits of financial statements for periods beginning on or after 15 December 2021.
It sets out detailed guidance on the responsibility of auditors to identify and assess risk. While there is nothing new in identifying risk of misstatement these revisions require detailed documentary assessments on audit files. A thought-out ‘risk driven’ approach demands significant judgement from the auditor in terms of the likelihood and magnitude of any potential risk impact on numbers and a further categorisation into risk level. Auditors are currently grappling with the new standard, and it remains to be seen how the quality bar will rise.
2. FRS 102
Over 95% of Irish entities can apply FRS 102 given that IFRS generally applies to listed entities. FRS 102 has been effective since 1 January 2015 and was dubbed a ‘go-between’ in terms of the move from previously extant Irish GAAP while adopting some of the principals of IFRS. It made cost-benefit an easy win for those entities that are owner managed or indigenous to Ireland. Despite some cosmetic changes and an adaptation of the CA 2017 accounting amendment act it has remained, as a standard, largely static.
On 15 December 2022, Fred 82 was published which proposes significant amendments to FRS 102 to align it closer to recent IFRS updates, specifically, IFRS 13, IFRS 15, and IFRS 16. While FRS 102 will incorporate a watered-down version of the requirements, expect some real challenges in transition. Mooted to be effective from 1 January 2025 there’s little over 18 months to get familiarised with the upcoming changes.
3. Sustainability reporting
The Corporate Sustainability Reporting Directive [CSRD] has been passed by the EU and is currently edging its way into Irish legislation. From 1 January 2025, large private companies in Ireland will need to provide detailed information in their annual reports. Additionally, these entities will need to obtain independent assurance, initially on a limited basis. Firms will need to consider the requirements around implementation, training, and suitability to be able to assist clients with this.
That adage from innovation parlance that ‘the pace of change has never been more rapid’ or words to that affect could not be a more appropriate tagline stamped on the forehead of the audit profession.
The key challenge facing auditors at this time is finely balanced in terms of the ever-increasing legislative obligations in ensuring high quality and the time it takes to complete audits pitted against the constant uptick in ‘people’ ‘process’ ‘technology’ in reaching the audit objective.
Certainly, much is made of automation of audit processes, better mining and cleansing of data, and much-needed reduction in the manual intervention required to execute audits. One thing for sure, is that the success of the audit profession in the future will most definitely land on striking this fine balance!
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