We note ED 720 (revised) and APB PN 24 setting out consequences of the Chancellor’s announcement of 28 November. In general we are supportive of the sections of the Draft which remain operational.
We note the remaining requirements in respect of the Directors’ Report, including the Business Review, in Section A of the ED.
We also note the remaining requirements in respect of “Other information in documents containing audited financial statements”, in Section C of the ED.
For companies which publish an operating and financial review (however called), which may be in accordance with the ASB's 2003 statement of best practice on the OFR or, in future may be influenced by the FRC’s RS1, such matter will be subject to the requirements of Section C.
The deleted Section B of the ED addressed the previous requirement in relation to the statutory OFR under the Regulations in SI 2005/1011. In particular auditors had to have attention to “any matters which have come to their attention, in the performance of their functions as auditors of the company, which in their opinion are inconsistent with the information given in the operating and financial review.”
However, Section C requires a reading of “other information to identify material inconsistencies with the audited financial statements” (2). And, under 4-1 “When the auditor reads the other information the auditor does so in the light of the knowledge the auditor has acquired during the audit……..with a view to identifying significant misstatements therein or matters which are inconsistent with the financial statements.”
It would appear to us that the scope of Section C’s wording is to all intents and purposes similar to the “matters that have come to the auditor’s attention” language elaborated in 11 ff of Section B, and therefore although Section B will be removed the standards of audit around a voluntary OFR will be broadly the same as around what would have been a mandatory OFR. However since different wordings were used in each section we wonder whether the intent was to imply a different level of knowledge. However, if it was your intention that the Section C wording should be narrower than that of the deleted Section B, we urge that this be rectified. In other word we support the need for any voluntary OFR to have been through a broad reasonableness verification by the auditors.
