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Uk Audit

In: Business and Management

Submitted By xia7930
Words 14003
Pages 57
Citi Research

Equities
27 March 2014 │ 20 pages

Western Europe

New UK Auditor’s Reports
A Review of the New Information
 What's New — UK auditor’s reports became (a bit more) interesting this year.

Auditors are now required to provide company-specific information in their reports.
We have reviewed some of the new reports and summarise key conclusions here.

 3 new pieces of information: — Auditors are required to report on the materiality

for the audit, the scope of the audit, and the work done on key areas of audit focus
(ie key risks).

Sarah Deans

+44-20-7986-4156 sarah.deans@citi.com Terence Fisher

+44-20-7986-5180 terence.fisher@citi.com  Materiality typically 5% of PBT — Information is material if “omitting it or

misstating it could influence decisions that users make on the basis of financial information”. The materiality amount is used by the auditor in planning and performing the audit and when assessing whether the financial statements give a true and fair view. In 78% of cases, materiality has been calculated as a percentage of pre-tax profit, usually around 5%, but sometimes as high as 10%. In our view, many analysts and investors will be surprised at this relatively high level of materiality.  Large variation in length and quality — Reports we reviewed varied in length

from 2 to 7 pages. We also noted very significant variations in quality, with some reports adding little or no value with largely boilerplate comments, while others contribute significantly to investor understanding. For example, the Rolls-Royce auditor’s report comments not only on key risks and the work done to assess them by the auditor, but also provides the auditor’s view on whether the company’s estimates are cautious or optimistic. In this note we show examples where PwC’s reports have fallen short of best practice; in…...

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