Auditors will be required to warn investors about risks of “material misstatements” in clients’ financial accounts under proposals made by the Financial Reporting Council (FRC).
Under proposals, auditors would also have to explain how they reached their decision.
The FRC said the proposal was in response to criticism that auditors’ reports are uninformative.
MPs have criticised the Big Four audit firms for giving banks a clean bill of health shortly before the financial crisis.
The proposed changes build on changes made by the FRC to board and auditor reporting last autumn, including requiring the auditor to communicate information to the audit committee about significant audit judgments, the FRC said.
Nick Land, chairman of the FRC’s audit and assurance Council said the consultation proposed a “step change from the traditional binary pass/fail model of audit report.”
The ICAEW said the FRC’s proposed changes to audit rules should be co-ordinated with other plans to change audit rules in the US and Europe.
“There is an increasing demand for information about companies from investors, regulators and other stakeholders. Users want a simple, unambiguous auditor opinion and more information about the audit itself and the audited company,” said Robert Hodgkinson, ICAEW executive director.
“Striking a balance while avoiding more boilerplate is a challenge. It is also possible for auditors to enhance confidence among users by supplementing the audit report with further assurance reporting, which can be designed to cover any aspect of a business that is of particular interest." he added.
Steve Collings, director at Leavitt Walmsley Associates said he welcomed the “opportunity to improve the credibility and clarity of the auditor’s report, in particular how audit firms have “dealt with risks that differ from those that have been disclosed by management.”
