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ICAEW Expresses Conerns Regarding FRS 102 Financial Statements

The ICAEW has published *Audit News 61, in which they highlight concern where auditors have assisted their clients with the preparation of their financial statements in accordance with FRS 102. Feedback from the Audit Registration Committee (“ARC”) states:

“During 2017, the ARC saw a number of issues concerning the audit of accounts prepared under FRS 102; particularly where the auditor also prepared those accounts.

While it is the directors’ responsibility to prepare their statutory accounts in accordance with the correct accounting framework, smaller clients often rely on their auditor to ensure accounts comply with these requirements.  However, in the cases reported to the ARC, accounts prepared by the firm have either been wrongly prepared under the previous framework, or the requirements of FRS 102 have not been fully met.

The ARC is concerned that these findings suggest weaknesses in the CPD carried out by firms who have not properly understood the changes required under FRS 102, or how to use their accounts preparation software properly.  The ARC would therefore like to remind firms that ICAEW has provided a range of helpful materials on FRS 102 for accounts preparers and auditors, which highlight certain problem areas and provide other useful guidance notes.

While the ARC did not issue any regulatory penalties in 2017 in respect of FRS 102-related issues, it does expect all responsible individuals and those staff involved in audit work to carry out appropriate CPD in this area.  The ARC also expects firms to implement appropriate controls to ensure accounts are prepared under the appropriate regime – for example, by using accounts disclosure checklists and by checking the small / medium company size criteria to be satisfied the accounts are prepared on the correct basis.

The committee would also like to highlight that if firms fail to prepare accounts in accordance with FRS 102 in the second year of implementation, or an audit does not identify significant non-compliance with FRS 102, firms may be sanctioned by the ARC, or in more serious cases, be referred to ICAEW’s Professional Conduct Department for investigation.”

Firms are reminded that if they continue to have any concern regarding the application of FRS 102, HAT is able to offer assistance as follows:

  • “Hot” reviews of financial statements;
  • “Hot” reviews of audit working papers files; and
  • In-house CPD covering the requirements of FRS 102.

Where this assistance is not included within a firm’s membership package, these services will be chargeable at HAT’s standard rates.

*Link for Audit News 61