The Financial Reporting Council (FRC) has made a "significant" change to the UK's auditing standards to enhance the transparency of financial reports.

Under the revisions to ISA 700, auditors reporting on companies that apply the UK Corporate Governance Code have to explain more about their work.

The revisions have received "strong support" during the consultation process and so they are being adopted with only "minor amendments".

FRC's Audit and Assurance Council chairman Nick Land said: "I am pleased that auditors as well as investors have given their enthusiastic support for the proposal in the Consultation Paper to supplement the binary pass/fail model of audit report.

"The provision of a fuller description of the work the auditor has undertaken will give far more insight to investors than the binary pass/fail model of the current audit report.

"The improved report will be a better basis for engagement by investors with companies, and we encourage auditors and companies to work together to develop succinct communication to do so."

The FRC is asking auditors to provide an overview of the scope of audit to show how it addresses the risk and materiality considerations and to provide an explanation of how they applied the concept of materiality in planning and performing the audit.

Auditors are also asked to describe the risks that had the greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team.

The revised standard is designed to complement the changes made to the UK Corporate Governance Code in October last year, and it is effective for audits of financial statements for periods starting on or after 1 October 2012.

First published 05.06.2013

monique_simpson@wilmington.co.uk