Audit reports: It’s time to cut the clutter!

Last month the Financial Reporting Council (FRC) released significant revisions to three auditing standards which deal with the form, content and matters reported in the audit report: ISA (UK) 700, ISA (UK) 701, and ISA (UK) 720.

The revisions respond to concerns that auditor’s reports have grown increasingly lengthy in recent years, often filled with boilerplate language that adds little value for readers The aim is to make audit reports shorter, clearer and more useful, allowing readers to focus on what really matters – a welcome change for auditors, businesses, investors and, of course, file reviewers!

The changes are effective for audits of financial statements for periods commencing on or after 15 December 2026 (so will largely take effect for December 2027 year ends and beyond), although the revised standards can be early adopted.

Often, changes to the ISAs (UK) bring an impending sense of ‘more work, more cost’, but these are revisions that auditors can really look forward to, particularly those auditors at the SME end of the market.

Now let’s take a look at what the changes really mean in practice.

Reporting on irregularities, including fraud

The requirement for the auditor to explain to what extent the audit was considered capable of detecting irregularities, including fraud, now only applies to entities within the scope of ISA (UK) 701 – so generally only listed entities and PIEs will now be required to report on such matters.

This revision will come as a welcome relief for many SME auditors, particularly those who have struggled for inspiration in wording this particular section of the audit report. The requirement for all audit reports to explain the extent to which the audit was capable of detecting irregularities, was introduced in 2019, however, in practice this has not always achieved it’s intended purpose. Rather, it has frequently resulted in lengthy, largely standardised wording that adds clutter without necessarily providing useful entity-specific information.

‘Other information’ and ‘Statutory other information’

The separate categories of “other information” and “statutory other information” in ISA (UK) 720 have been merged into a single category of “other information”. This should simplify the structure of the auditor’s report and reduce some of the repetitive reporting currently included.

Reporting on Key Audit Matters (KAMs)

Key observations on each Key Audit Matter (KAM) must be included, where relevant to users, in all audit reports within the scope of ISA (UK) 701, not just for PIEs.

Reporting on internal controls

For companies that are required to, or voluntarily choose to, follow the UK Corporate Governance Code (UK CGC), there are new requirements for auditors to describe how the company's controls affected the audit, and – where there are serious internal control deficiencies are identified – to communicate them in the auditor’s report.

The FRC has published a ‘Mythbuster’ document to help with the consistent application of these requirements alongside the Provision 29 requirements in the UK CGC.

What should audit firms do now?

There is no need to start rewriting audit reports immediately, but firms should make sure these changes are included in their technical update programmes and reflected in their audit-reporting templates and methodology before they become effective.

The changes are undoubtedly welcome—particularly the removal of some of the lengthier, more formulaic reporting requirements for SME audits. However, shorter should not simply mean deleting paragraphs from last year’s report. Firms will still need to ensure that the report is appropriate to the entity, complies with the revised requirements and, most importantly, communicates clearly to its intended readers.

The FRC has committed to updating its Bulletin on illustrative auditor reports. At the time of writing, this hasn’t yet been published but we will be keeping our eyes peeled for the release.

In the meantime, perhaps this is one occasion when “less documentation” really is the correct answer—provided we are talking about the word in the audit report, of course!