FRC publishes IFRS 9 Banking Audit Methodology Thematic
News types: Generic Announcement
Published: 24 February 2023
The Financial Reporting Council (FRC) has today published a thematic review on the Big 4 audit firms’ methodology around IFRS 9 , focusing on the audit of Expected Credit Losses (ECL) for larger banks.
IFRS 9 is a complex area to audit and remains a continued challenge for auditors of banks. The Big 4 audit firms have made significant investment in their IFRS 9 audit methodologies, and the review identifies several examples of good practice, including around the auditing of ECL models and assumptions. However, it also highlights areas for improvement, such as the guidance provided on testing judgemental aspects of Significant Increase in Credit Risk.
Based on a review of a small sample of larger bank audit files, and supported by findings from previous AQR inspections, the review identified that while the audit methodology is often being applied to a high level, there continue to be instances of poor application across the audit firms. It remains paramount that audit firms ensure their designed methodology is consistently and appropriately applied to the circumstances of each individual audit.
The FRC expects this to be a useful resource for auditors, Audit Committees and stakeholders in the banking sector, highlighting the importance of consistent and appropriate application of IFRS 9 audit methodology, to ensure high quality auditing is performed over this critical and judgemental area.
IFRS 9 is a complex area to audit and remains a continued challenge for auditors of banks. The Big 4 audit firms have made significant investment in their IFRS 9 audit methodologies, and the review identifies several examples of good practice, including around the auditing of ECL models and assumptions. However, it also highlights areas for improvement, such as the guidance provided on testing judgemental aspects of Significant Increase in Credit Risk.
Based on a review of a small sample of larger bank audit files, and supported by findings from previous AQR inspections, the review identified that while the audit methodology is often being applied to a high level, there continue to be instances of poor application across the audit firms. It remains paramount that audit firms ensure their designed methodology is consistently and appropriately applied to the circumstances of each individual audit.
The FRC expects this to be a useful resource for auditors, Audit Committees and stakeholders in the banking sector, highlighting the importance of consistent and appropriate application of IFRS 9 audit methodology, to ensure high quality auditing is performed over this critical and judgemental area.