Newswire July 2025

AUDIT & ACCOUNTING

FRC publishes first guidance on use of AI and related tools within the audit profession

The new Financial Reporting Council (FRC) paper, AI in Audit, is the first of its kind from the UK regulator and looks to provide much needed clarity on the use of AI and other related Automated Tools & Techniques (ATTs) within the audit profession. The paper is split between a worked example, detailing the selection and implementation process of a hypothetical tool for journals testing, and a detailed analysis of regulatory expectations around documentation of work performed using these tools and the tools themselves, with a strong focus on explainability and assessing outputs.

The regulator has also separately produced a thematic review on selection, implementation, certification and development of processes and controls around these tools at the six largest firms.

FRC publishes findings of SME audit market research and Exposure Draft

The FRC has continued its project aimed at increasing the effectiveness of the audit market for SMEs by publishing the results of its study of the market. The regulator engaged with over 500 stakeholders (including investors and lenders, auditors, businesses themselves and other professional bodies) during production of the report, which includes a summary of the FRC’s findings and targeted guidance. Key issues noted by the regulator include a perceived gap between the requirements of the statutory audit process and standards and the requirements of SMEs themselves as well as knowledge and resource gaps in the market, particularly with regard to technology.

Included with the report is a new Practice Note Exposure Draft relating to the audit of smaller and/or less complex entities. Stakeholders are invited to attend a webinar on this on 30 July. The full report and Exposure Draft can be found here.

Consultation launched on narrow scope amendments to FRS 102 and PIE arrangements

The FRC is consulting on draft amendments to FRS 102, which aim to align the UK reporting standard with the new IFRS 18 Presentation and disclosure in financial statements, which covers key issues such as the form, content and policies within financial statements. The consultation is seeking stakeholder views, and runs until 10 October.

The regulator has also proposed draft amendments to the Public Interest Entity (PIE) Auditor Registration Regulations. Whilst the key focus of the regulations will remain the maintenance of audit quality and protection of the public interest in this market segment, the changes look to reduce the administrative burden on market participants and provide more clarity and flexibility, as well as responding to changes in the type of activities PIEs are undertaking. The consultation runs until 2 October, with a view to implementing the amendments in January 2026.   

UKEB publishes draft assessment of IFRS 18

The UK Endorsement Board (UKEB) has considered whether the standard, IFRS 18 Presentation and Disclosure in Financial Statements, meets the statutory criteria for formal adoption for use in the UK. The standard, if adopted, will expand upon and supplant the requirements and guidance currently included in IAS 1, with a proposed effective date of 1 January 2027. The UKEB’s assessment is included in the IFRS 18 [Draft] Endorsement Criteria Assessment. The Board is now seeking stakeholder views on its assessment and will accept comments submitted until 7 October 2025.

UKEB releases cash flow findings

The UKEB has released the findings from its public consultation on the statement of cash flows and related matters, started in September 24. The project follows concerns raised as part of a review into similar matters on a global scale undertaken by the IASB, which flagged a number of perceived deficiencies stakeholders identified in existing cash flow related standards and requirements. The UKEB notes that almost all participants in the UK study agreed that targeted improvements could be made to IAS 7 and related texts. Including requirements for greater cohesiveness between the core financial statements, the possibility of greater disaggregation to provide greater clarity around non-cash transactions and clarity in the definition of cash and cash equivalents, amongst others.

IASB launches review of IFRS 16 Leases
With the new standard now having been effective since 2019 and widely in use across the profession, the International Accountancy Standards Board (IASB) has launched a post-implementation review of the standard, with a view to determining whether it is providing appropriate outcomes for all stakeholders, including investors, auditors, reporting accountants and regulators. The request for information is open until 15 October.

IAASB issues revised fraud standard, ISA 240

Following an extensive global consultation with regulators, professionals and other stakeholders, the IAASB has issued a revised international auditing standard on fraud for the global market. The revision responds to increased stakeholder interest and scrutiny on the auditor’s role in detecting fraud and looks to strengthen the use of a fraud lens during the risk assessment process as well as clarifying the auditor’s responsibilities and increasing transparency in the auditor’s reports on publicly traded entities. This new standard will not be effective in the UK, though the UK regulator will review and consider the international standard for any possible amendments to the domestic version.

IAASB releases further explanatory material for the ISA for LCEs

The International Auditing and Assurance Standards Board (IAASB) has produced a new FAQ document to support its ISA for LCEs, its assurance standard tailored for audit procedures performed on less complex entities (LCEs) in the global market. The document summarises and addresses common queries and concerns arising since the standard took effect in 2023 and represents the final instalment in the board’s programme of producing supporting documentation for the standard. The standard is not effective in the UK.

FRC issues results of annual audit firm inspection process

The FRC has published its Annual Review of Audit Quality. The report documents the results of inspection and supervision of audit firms operating within the UK Public Interest Entity (PIE) market, and is based on reviews of a risk-based sample of engagement files, as well as individual whole firm inspections of the six Tier 1 firms.

The report highlights good practice and broad continued improvements in audit quality within this group, with a majority of the firms receiving positive findings in 90% of engagements reviewed. However, it also notes that there is room for improvement in some of the Tier 1 firms as well as highlighting concerns that a gap in quality continues to grow between Tier 1 firms and the remainder of the UK market. The report continues the FRC’s call for all stakeholders to collaborate to ensure audit quality is maintained across the market.

Further changes to UK Company Law under ECCTA

As part of the roll out of the Economic Crime and Corporate Transparency Act (ECCTA), the UK government has now announced the date from which key changes will take effect. From 1 April 2027, filing options for small and micro entities will change, with both being required to file a full profit and loss account with the registrar, in addition to their balance sheet. Furthermore, small companies will also have to comply with requirements around inclusion of director’s and, where relevant, auditor’s reports. There will also be changes to the claiming of audit exemption and available methods of filing accounts. Full details can be found on the government’s website.

PENSIONS

PRAG launches SORP consultation

Following the approval of the revised FRS 102 (September 2024), the body responsible for updating the accounting SORP for the UK Pensions sector, Pensions Research Accountants Group (PRAG), has issued a draft of its proposed 2025 SORP and an invitation for stakeholders to comment. Updates proposed in the current draft version include clarification of formatting issues within the financial statements, additional disclosures around going concern and liquidity risk and consideration of the valuation of insurance buy out assets. The consultation runs until 17 September.

ANTI-MONEY LAUNDERING

FCA issues guidance on treatment of Politically Exposed Persons (PEP)

The Financial Conduct Authority (FCA) has issued its finalised guidance on the issue, aiming to provide firms with a framework to ensure a proportionate and risk-based approach to this key matter. The update clarifies the position on UK civil servants, updates the regulatory guidance to reflect updated Money Laundering and Terror Financing legislation and updates guidance on PEP review sign off.

SUSTAINABILITY

IFRS Foundation publishes guidance on transition arrangements

The IFRS Foundation has published a new guidance document for disclosing information about an entity’s climate-related transition, including information about transition plans, in accordance with IFRS S2 as part of its commitment to supporting the implementation of IFRS Sustainability Disclosure Standards (ISSB Standards). The document builds on disclosure-specific material developed by the Transition Plan Taskforce (TPT), for which the IFRS Foundation took responsibility in 2024.

Views sought on UK SRS exposure draft

As part of its drive to increase the availability of credible information for decision makers within UK markets, the government has launched a public consultation on the UK Sustainability Reporting Standards (SRS), which are based on IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. The UK proposes six minor amendments for adaptation of these standards domestically. The consultation runs until 17 September.

ACCA issues case study on sustainability reporting

ACCA and CA ANZ have joined forces to provide a practical guide to key requirements of ISSA 5000. A case study: Demystifying materiality in accordance with ISSA 5000 is intended to support assurance practitioners in applying professional judgement when planning and performing sustainability assurance engagements under the standard.

IESBA and IAASB create expert groups to assist implementation of sustainability standards

Both boards have assembled expert groups staffed by professionals with considerable hands on professional experience to assist organisations and support the global role out of their sustainability reporting standards. The groups will aim both to provide timely, relevant feedback drawn from real world practice as well as identify best practice and create implementation resources which may be commissioned by the boards themselves.

TAXATION