Investors and audit committees would like auditors to go further in their communications, ensuring audits focused on most valuable information to investors
According to the latest thematic review from the Financial Reporting Council (FRC) audit firms have improved their methodologies and guidance, particularly for certain industry sectors and first year audits.
However it remains the case that the differences in methodology, guidance and their application can result in very different thresholds between audit firms.
Auditors are therefore encouraged to be more specific with audit committees and in their public reports about the materiality judgements they have made and the impact on the scope, nature and extent of their audit work.
The FRC report also highlights key messages for audit committees and audit standard setters.
Melanie McLaren, FRC’s Executive Director for Audit and Actuarial Regulation, said: “In future with technological advances the importance of materiality may reduce as companies and their auditors become able to more cost-effectively, and accurately, interrogate and adjust financial information. However, this is not yet the case.”
She added: “Appropriate quantitative and qualitative assessment of materiality affects audit quality. We are pleased to see the audit firms take action following our 2013 thematic review.
Auditors should be encouraged by investor feedback on the transparency afforded by UK extended auditor reports and redouble their efforts to communicate the reasons for and implications of the materiality threshold applied in specific audits.”