The findings of the 2022 Accounting and Financial Reporting Council (AFRC) inspection report have shed light on the pressing need for improvements in audit quality, particularly within smaller audit firms. This call for higher standards and the AFRC’s plans for the 2023-2025 inspection cycle have significant implications for listed companies, CFOs, and Directors.
In the following sections, we’ll explore the specific implications for CFOs and directors, and what they should do in response to the findings.
How Listed Companies Will Be Impacted
Increased Scrutiny and Compliance Pressure
With the AFRC’s pointed focus on improving audit quality, listed companies will face increasing scrutiny in their financial reporting. The report highlighted deficiencies in the acceptance and continuance of client relationships, indicating that companies will need to pay greater attention to their financial controls and processes.
Potential Audit Delays
The report also noted uncooperative behaviors from some firms during inspections, which could potentially lead to audit delays. Listed companies need to prepare for such eventualities and ensure they have the necessary resources and contingencies in place.
What CFOs Need to Do
CFOs will need to stay ahead of changes in regulations and standards to ensure their companies’ financial reporting processes are compliant. The AFRC report indicates a strong need for CFOs to be proactive in improving their audit quality.
Build Strong Relationships with Audit Firms
CFOs should work to build strong relationships with audit firms, ensuring clear communication and understanding of the audit process.
Continuous Learning and Training
CFOs should invest in continuous learning and training to stay updated on the evolving regulatory landscape.
Engage with CFOs and Audit Firms
Directors should engage actively with CFOs and audit firms to understand the impact of the AFRC’s findings and future plans on their companies.
Ensure Robust Risk Management
Directors need to ensure their companies have robust risk management strategies in place, particularly concerning risk assessment processes and AML/CTF compliance.
Strengthening Governance and Oversight
Directors must provide strong governance and oversight to ensure the quality of financial reporting and audits. The AFRC report indicates that directors should maintain regular communications with auditors on key audit risks and resolve any issues identified during the audit.
We’d love to hear your thoughts on the changing audit landscape. How are these changes impacting your role or organization?
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