The Audit and Assurance Council was established in 2012 as an advisory body for the Financial Reporting Council (FRC). This was part of a broader overhaul aimed at strengthening the financial reporting and audit regulation landscape in response to the financial crises of the late 2000s. The Council succeeded the Auditing Practices Board (APB), taking on a more focused and purely advisory role, contrasting with the APB’s more expansive mandate.
Types/Categories
Advisory Role
The Council’s primary responsibility is to advise the FRC on:
- Audit and Assurance Practices: Recommending best practices and standards.
- Code Issuance: Providing input on the creation of codes for audits.
- Guidance: Offering guidance on both technical and strategic levels.
Membership Composition
The Council is characterized by a diverse membership to ensure broad perspectives:
- Non-Audit Members: At least half of the members are drawn from outside the audit profession, ensuring independence and a varied viewpoint.
- Audit Professionals: The remainder are experienced audit professionals, ensuring technical competence.
Key Events
- 2012 Formation: The Council was established as part of FRC’s strategic realignment.
- 2016 Reform: The Council’s structure and scope were reviewed to enhance its effectiveness.
Detailed Explanation
Purpose and Functions
The Audit and Assurance Council serves a critical advisory function to the FRC:
- Standards Development: Advising on the creation and maintenance of high-quality audit standards.
- Consultation and Review: Reviewing public consultations and stakeholder feedback on audit practices.
- Policy Input: Offering insights on policy matters related to audit and assurance.
Organizational Structure
graph TD;
A[FRC] --> B[Audit and Assurance Council]
B --> C(Non-Audit Members)
B --> D(Audit Professionals)
C --> E{Diverse Perspectives}
D --> F{Technical Expertise}
Importance and Applicability
The Council’s work is pivotal in:
- Maintaining Audit Integrity: Ensuring robust auditing practices to safeguard financial systems.
- Enhancing Transparency: Promoting transparent financial reporting.
- Improving Confidence: Boosting stakeholder and public confidence in financial reporting mechanisms.
Examples
- Audit Standard Advisories: The Council has provided advisory input leading to the enhancement of International Standards on Auditing (ISAs).
- Consultative Paper Feedback: Contributed feedback on FRC’s consultative documents, shaping final policies and codes.
Considerations
Ethical Implications
- Independence: Ensuring Council members operate without conflicts of interest.
- Confidentiality: Maintaining the confidentiality of sensitive financial information.
Practical Implications
- Implementation: Practical aspects of implementing recommended standards at audit firms.
- Compliance Costs: Financial and resource considerations for audit firms to comply with enhanced standards.
Related Terms with Definitions
- Financial Reporting Council (FRC): The UK’s independent regulator responsible for promoting transparency and integrity in business.
- International Standards on Auditing (ISAs): Professional standards for conducting financial audits.
- Audit Quality: The likelihood of an audit detecting and correcting material misstatements.
Comparisons
- Audit and Assurance Council vs. Auditing Practices Board:
- Scope: The APB had a broader regulatory and standard-setting role, while the Council focuses on advisory functions.
- Independence: The Council includes a higher proportion of non-audit professionals.
Interesting Facts
- Diverse Composition: Unlike many advisory bodies, the Council mandates a diverse membership with significant representation from non-audit professionals.
- Response to Crisis: Its formation was part of post-crisis reforms aimed at restoring trust in financial markets.
Inspirational Stories
- Ethical Reforms: Stories of Council advisories leading to stricter ethical standards in audits, thereby averting financial misconduct.
Famous Quotes
“The integrity of our financial reporting system hinges on robust auditing standards.” - Anonymous Auditor
Proverbs and Clichés
- Trust but Verify: Highlights the importance of diligent auditing to verify financial information.
Expressions, Jargon, and Slang
- [“Clean Opinion”](https://financedictionarypro.com/definitions/c/clean-opinion/ ““Clean Opinion””): An audit opinion that states financial statements are free of material misstatements.
- [“Big Four”](https://financedictionarypro.com/definitions/b/big-four/ ““Big Four””): Refers to the four largest professional services networks offering audit, assurance, and consulting services.
FAQs
What is the role of the Audit and Assurance Council?
Why was the Audit and Assurance Council established?
Who are the members of the Audit and Assurance Council?
References
- Financial Reporting Council. (2012). Audit and Assurance Council: Terms of Reference.
Summary
The Audit and Assurance Council plays a crucial advisory role in maintaining high standards of auditing and assurance practices. Established in 2012, it advises the FRC on relevant matters, ensuring diverse and independent perspectives are included in the development of auditing standards. Its contributions are integral to fostering transparency and trust in financial reporting, impacting both regulatory frameworks and practical auditing procedures.
