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U.K. insurance-company auditors should have more clarification about how to comply with international auditing requirements under new guidance from the U.K. Financial Reporting Council.
With the guidance, the entities the auditors review should also have a better understanding of what to expect.
FRC, which establishes accounting, auditing and actuarial standards for the U.K. and the Republic of Ireland, published its revised Practice Note 20 (PN20) Feb. 1 to assist auditors in implementing two international standards on auditing, ISA 800 and ISA 850 that the council adopted in October 2016.
PN20 “will assist auditors in the application of auditing standards in a proportionate way to the audit of statutory financial statements, and regulatory reporting engagements,” FRC said.
Insurance auditors aren’t required to adopt the guidance.
As with all FRC practice notes, however, PN 20 should be “considered within the scope of the FRC’s review and monitoring work,” the council said. Those entities to which practice notes are applicable “should apply them in full, or be able to clearly justify non-compliance.”
FRC adopted ISAs (UK) 800 and 850 in response to European Union requirements for public reporting in the insurance sector, known as Solvency II.
The EU’s Solvency II directive came into force in January 2016 to replace more than a dozen EU policies on insurance, and the council said the directive required FRC to revise PN20 to supply further guidance on audits of insurance providers.
ISAs (UK) 800 and 850 took effect in the U.K. for reporting periods starting on or after Jan. 1, 2017, with early adoption permitted.
The 156-page PN20 offers instruction on applying the two ISAs to entities offering insurance in the U.K. that are authorized by the Prudential Regulation Authority (PRA), which is part of the Bank of England.
It also covers audits of overseas companies that sell insurance in the U.K., as well as Lloyd’s syndicates and entities called friendly societies—mutual societies providing such financial services as savings accounts, insurance and pensions plans—with U.K. insurance operations.
Release of PN20 follows publication of an exposure draft (ED) on replacing the previous PN20 and an eight-week consultation that ended Dec. 16, 2016.
In response to comments from auditing firms and organizations, FRC made minor revisions to the ED, including:
The council said in a Feb. 1 impact assessment that it doesn’t expect PN20 to produce measurable expenses or paybacks for business beyond regulatory measures that the PRA already has adopted.
“The costs and benefits have already been the subject of a PRA impact assessment, carried out in support of its own consultation on proposed Rule changes,” according to the assessment.
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Practice Note 20 is available at https://www.frc.org.uk/Our-Work/Publications/Audit-and-Assurance-Team/Feedback-Statement-and-Impact-Assessment-Revis-(1).pdf.
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