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ISA (UK and Ireland) 700 (June 2013) - Clarification Statement

This document provides clarification on applying the requirements of paragraph 19A of ISA (UK and Ireland) 700 to auditor's reports on group and parent company financial statements. Specifically, it clarifies that the requirements of paragraph 19A should apply primarily to the auditor's report on the group financial statements. However, risks unique to the parent company audit may also be relevant. When a single combined report is issued, unique risks to the parent company audit should be separately identified but integrated within disclosures on the group audit. When separate reports are issued, the group report could reference corresponding disclosures integrated within that report.

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71 views2 pages

ISA (UK and Ireland) 700 (June 2013) - Clarification Statement

This document provides clarification on applying the requirements of paragraph 19A of ISA (UK and Ireland) 700 to auditor's reports on group and parent company financial statements. Specifically, it clarifies that the requirements of paragraph 19A should apply primarily to the auditor's report on the group financial statements. However, risks unique to the parent company audit may also be relevant. When a single combined report is issued, unique risks to the parent company audit should be separately identified but integrated within disclosures on the group audit. When separate reports are issued, the group report could reference corresponding disclosures integrated within that report.

Uploaded by

Josiah Mwashita
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ISA (UK and Ireland) 700 (June 2013) – Clarification Statement

This document sets out a clarification statement issued by the FRC in relation to paragraph
19A of ISA (UK and Ireland) 700 (Revised June 2013) The Auditor’s Report on Financial
Statements.

Background
Paragraph 19A of ISA (UK and Ireland) 700 (Revised June 2013) establishes requirements
with respect to the content of auditor’s reports of entities that are required, and those that
choose voluntarily, to report on how they have applied the UK Corporate Governance Code,
or to explain why they have not.

An auditor’s report for a group may include the auditor’s report with respect to both the group
and the parent company financial statements. This is typically the case where both sets of
financial statements are presented in accordance with IFRS as adopted in the EU.
However, the FRC’s compendium of auditor’s reports (Bulletin 2010/2) notes that, where the
financial statements of the group and the parent company are presented in accordance with
different financial reporting frameworks, the financial statements might be presented
separately within the Annual Report and in such circumstances separate auditor’s reports in
respect of the group and the parent company financial statements might be provided within
the Annual Report.

Issue
With respect to groups, some stakeholders have sought clarification as to whether the
requirements of paragraph 19A are intended to apply with respect to the auditor’s report(s)
on both the group and the parent company financial statements of entities that are within the
scope of Paragraph 19A, both when the auditor’s reports thereon are combined in a single
report and when they are provided separately.

The FRC’s intention


The focus of the FRC’s intention was that the requirements of paragraph 19A should apply
primarily to the auditor’s report on the group financial statements. The standard was not,
however, written to exclude the application of the requirements to the separate audit of the
individual parent company financial statements.

Further analysis
Most of the risks of material misstatement addressed in the audit of the parent company
would likely also be risks of material misstatement in the audit of the group financial
statements, subject to any differences in quantitative materiality considerations that may
apply in those audits. However, the FRC recognises that there may be important risks of
material misstatement that only arise in relation to the audit of the parent company financial
statements (such as risks relating to investments in subsidiaries that could, for example,
have implications for distributable reserves).

An understanding of such risks may be of interest to readers of auditor’s reports where such
risks have had the greatest effect on the overall audit strategy for the parent company audit.
Readers may find such risks to be of particular interest when their implications are relevant
in the context of the parent company’s reported distributable reserves. However, readers of
the auditor’s report(s) on the group and parent company financial statements will be assisted
by avoiding unnecessary duplication or disaggregation of matters arising from these audits in
such report(s).

Application where there is a single auditor’s report


Where the auditor’s reports on both the group and parent company financial statements are
combined within a single report, it may be appropriate for any relevant risks and other
information required by paragraph 19A that are unique to the parent company audit to be
separately identified but integrated within the disclosures in that report of corresponding
matters arising from the audit of the group financial statements.

Application where the auditor reports separately on the group and parent company
financial statements
Where the auditor provides separate auditor’s reports on the group and parent company
financial statements, it may also be appropriate for any relevant risks and other information
required by paragraph 19A that are unique to the parent company audit to be separately
identified but integrated within the disclosures within the group auditor’s report of
corresponding matters arising from the group audit. Where this is so, the parent company
auditor’s report could make reference to this fact in the other matter paragraph that refers to
the separate auditor’s report on the group financial statements rather than repeating the
information.

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Aldwych House, 71-91 Aldwych, London WC2B 4HN Tel: +44 (0)20 7492 2300 Fax: +44 (0)20 7492 2399 www.frc.org.uk
The Financial Reporting Council Limited is a company limited by guarantee. Registered in England number 2486368. Registered office: as above.

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