Project overview
The Financial Reporting Council (FRC) commissioned a research study to evaluate the current state of auditor reporting in the UK, with a focus on improving the usability and informativeness of audit reports. This study was conducted by researchers from the Universities of Southampton, Portsmouth and Brunel and examined 396 auditor reports from FTSE 350 and large AIM-listed companies issued in 2021. The research was driven by concerns that auditor reports, despite their enhanced detail following reforms in 2014, had become overly lengthy and standardised, reducing their decision-usefulness. The study aimed to assess reporting practices on key audit matters (KAMs), materiality, fraud detection, going concern, and other emerging risks, providing insights into how audit firms communicate financial statement risks and their responses. The findings were published in six infographic snapshots, summarising key patterns and trends in audit reporting.
The study highlighted significant variations in auditor reporting based on market segments, audit firms, and industry sectors. Key findings included differences in the length and readability of reports, the prevalence of boilerplate disclosures, and the evolving treatment of materiality benchmarks and audit risks. It was observed that larger firms (Big 4) produced longer and more detailed reports, while Challenger firms tended to issue shorter reports with more standardised disclosures. Auditor reports for FTSE 100 companies contained more Key Audit Matters (KAMs) than those for FTSE 250 or AIM firms, and reports varied in their approach to going concern assessments, fraud detection, and climate-related risks. Additionally, the study found that while climate change was rarely designated as a KAM, the COVID-19 pandemic had a notable impact on auditor reporting. These findings provide a foundation for the FRC’s ongoing efforts to enhance the relevance, clarity, and transparency of auditor reports in the UK.
The study highlighted significant variations in auditor reporting based on market segments, audit firms, and industry sectors. Key findings included differences in the length and readability of reports, the prevalence of boilerplate disclosures, and the evolving treatment of materiality benchmarks and audit risks. It was observed that larger firms (Big 4) produced longer and more detailed reports, while Challenger firms tended to issue shorter reports with more standardised disclosures. Auditor reports for FTSE 100 companies contained more Key Audit Matters (KAMs) than those for FTSE 250 or AIM firms, and reports varied in their approach to going concern assessments, fraud detection, and climate-related risks. Additionally, the study found that while climate change was rarely designated as a KAM, the COVID-19 pandemic had a notable impact on auditor reporting. These findings provide a foundation for the FRC’s ongoing efforts to enhance the relevance, clarity, and transparency of auditor reports in the UK.
