On Oct. 3, UK FRC issued revised ISA (UK) 505 external confirmations.
UK FRC issued revised ISA (UK) 505 External Confirmations and a feedback statement following the previous consultation process that started in May. 2023, on the changes.
The feedback statement confirmed the consultation process and that the ISA (UK) 505 External Confirmations includes the requirements and application material relevant to auditors when using any form of external confirmations as a source of audit evidence.
Since previous revision of ISA (UK) 505, new digital means of obtaining confirmations have evolved and stakeholders indicated that whilst the core requirements in ISA (UK) 505 were still relevant, it would be beneficial to understand new regulatory position.
Recent enforcement findings demonstrated work undertaken by auditors in relation to investigating exceptions, has sometimes been insufficient in relation to some audits.
With both in mind UK FRC convened a working group to consider the revision of ISA (UK) 505, comprising UK FRC staff from the Audit and Assurance Policy, Audit Quality Review and Enforcement teams, along with representatives from audit firms in the UK.
In May 2023 UK FRC issued public consultation on proposed revisions to ISA (UK) 505 and had 9 responses to exposure draft, 4 from audit firms and 5 from other bodies.
Overall, all respondents were supportive of the FRC’s proposal to revise ISA (UK) 505.
Specific changes were though made to the document based on the feedback including to clarify direct access to information held by third party can be external confirmation.
Also, the material in A18 has been updated to reflect the fact that observing audited entity personnel accessing bank information may be part of the alternative procedures.
While respondents agreed with prohibition on negative confirmations, changes have been made to remind group auditors to inform on prohibition, to component auditors.
Proposed effective date for revised ISA (UK) 505 is for it to be effective for audits of group financial statements for periods beginning on or Dec. 15, 2024, with the early adoption permitted, and all respondents agreed this was an appropriate effective date.
ISA (UK) 505 (Revised)
The revised version of the ISA (UK) 505 External Confirmations document was also published, with the changes made highlighted in the text to cover the new material.
This includes revised definitions for materials that are accessed via electronic medium, as well as use of negative confirmations being prohibited in an audit under ISA (UK).
External confirmation procedures must be designed to provide evidence relevant to the assertions identified in accordance with ISA (UK) 330, under changes to other forms.
Also, when investigating exceptions, the auditor must consider the risk of fraud, the risk to deficiency in systems, and additional procedures need for appropriate evidence.
For bank balances periodic reminders to confirming party are needed while reviewing online banking/third party bank statement/banking agreement, physically visiting bank with management to obtain in-person confirmation, looking for unexpected payments.
Also published was the conforming amendments to other ISAs (UK) as a result of the revisions to ISA (UK) 505 (Revised October 2023), to become effective on same date.
Effectiveness
ISA (UK) 505 is effective for group financial audits for all periods from Dec. 15, 2024.
