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September 26, 2019

FRC: Audit firm transparency reports not visible enough and ineffective

By Joe Pickard

The UK’s Financial Reporting Council (FRC) has found transparency reporting by accountancy firms performing audits to be currently ineffective with a lack of awareness amongst investors and audit committee chairs that reports even exist and many being used as a marketing exercise.

The FRC’s review found that while mandatory transparency reports broadly contain the required information, for those aware of the reports, there is a view they are too long and overly positive to be useful.

The regulator expressed the concern that many firms treat the reports as a marketing tool which damages the perception among stakeholders and limits their usefulness.

Other findings of the review include:

  • 84% of Audit Committee Chairs were not even aware of Transparency Reports
  • 15% of reports were not found on firms’ websites
  • five of the 33 firms reviewed did not prepare a report at all.

The FRC has called on firms to reduce the length of their transparency reports and explain within them the challenges they are facing in seeking to deliver consistently high quality audits.

FRC executive director of supervision David Rule said: “Transparency is vital to creating public trust in audit. Despite some improvements there is much more to be done to convince users to read and discuss these reports with the firms.

“Audit Committee chairs and institutional investors should be fully aware that the reports exist. The most effective way to improve the reports is direct dialogue between stakeholders and the firms, and given this is publicly available information, there should be no barriers to this happening.”

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