Accounting standards in auditing

Introduction

In general, published accounts are required to
conform to the relevant financial reporting standards. Part of the auditors’
duty is to assess whether or not the financial statements they are auditing do
comply in general and in detail with financial standards. This book is about
auditing and cannot include a detailed

description of all the accounting
standards. For a detailed understanding readers will need to consult an
accounting textbook.

Accounting
standard setting
The financial reporting standards are issued by the
accounting standards board (ASB) which is a subsidiary of the financial
reporting council (FRC).
A subcommittee of the ASB is the urgent issues task
force (UITF) which issues UITF abstracts. These abstracts are regarded as
accepted practice in the area in question and financial statements should
generally conform to them. There is another subsidiary of the FRC-the financial
reporting review panel (FRRP) which examines departures (when referred to them)
from the accounting standards.
Some areas, particularly charities and public
sector bodies have statements of recommended practice (SORPs), which are also
approved by the ASB. The financial statements of organizations within the
relevant sectors would normally comply with the appropriate SORP. The best
known of these is probably the SORP which relates to the accounts of charities.
The ASB issues a financial reporting exposure draft
(FRED) on matters on which a new FRS is intended and sometimes a discussion
paper before the FRED. The FREDs have no standing but often give an
understanding of current best practice.
Current
accounting standards
Auditing students should be aware of and familiar
with the financial reporting standards required for the syllabuses they are
studying. They should also be aware that new standards are being issued all the
time and the up-to-date situation must be known.
Small
companies and the accounting standards
The accounting standards are on a continuum from
basic accounting, for example IAS2 (SSAP9)-which affects all companies who
carry stock, to arcane issues, such as FRS13-derivates and other financial
instruments-disclosures, which is likely only to affect large.
For small companies (i.e. those that are classed as
small under the company’s act 2006) the ASB has issued the financial reporting
standard for smaller entities (FRSSE) which considerably reduces the volume of
accounting standards such companies have to comply with.
Students should also be aware of the statement of
principles for financial reporting (ASB) and/or the framework for the
preparation and presentation of financial statements (IASB)
The
relevance of accounting standards to auditing
As we have seen from the previous chapter auditors
must including their repots, their opinion on whether the financial statements
they report on give a true and fair view.
Accounts, to show a true and fair view, must comply
with these financial reporting standards, unless circumstances are exceptional.
The companies act 2006 formally recognized the financial reporting standards
and required that accounts should include a statement confirming that the
accounts have been prepared in accordance with applicable accounting standards.
Thus auditors are, in effect, being asked to give
an opinion on whether all accounting standards have been complied with in the
preparation of the accounts they are auditing-which means that auditors must
know and understand the accounting standards in detail.
Auditing students are expected to know the main
accounting standards in detail. Many auditing questions in examinations require
this knowledge and examinees are advised to quote from the accounting standards
and state which of the accounting standards are relevant to their answer.

Leave a Reply

Your email address will not be published. Required fields are marked *