Technical update

Audit

The Financial Reporting Council (FRC) has issued new guidance to help auditors to apply auditing standards in a more proportionate and efficient way for SMEs. The FRC is also planning to develop a technology sandbox to enable smaller audit firms to explore the use of AI in corporate reporting, and to establish a new professional bodies working group to promote more consistency in how audits of SMEs are supervised.

In addition, the FRC is introducing a change to its audit supervisory model, placing more emphasis on a firm’s systems of quality management. It has also published updated guidance on ‘comply or explain’ reporting by companies that choose to depart from the  provisions of the UK Corporate Governance Code.

Fraud

The National Crime Agency’s latest SARs in Action e-zine discusses how company impersonation fraud and payment diversion fraud in property sales work. Examples of company impersonation fraud include using professional service firm addresses as a registered office for suspect companies without permission, and faking audit reports and filing these with financial statements at Companies House.

Fraudsters are also known to use the logos and names of accountants on investment prospectuses to give the impression that the firm had provided assurance about the claims made about the projected returns and/or existence of the assets backing the ‘investment product’. One specific case is discussed where the fraudsters set up an internet domain that allowed them to create both a website and email addresses that used a variation of the name, and the real logo, of a large accounting firm.

Artificial intelligence

The Chartered Institute of Internal Auditors has published Artificial Intelligence and Internal Audit: Opportunities, Risks and Future Directions. The paper includes an overview of representative use cases and demonstrates the practical application of AI by internal audit professionals. The publication also looks at managing issues such as hallucinations, variability, and output reliability and assurance.

The FRC has issued guidance on audit firm adoption of emerging AI technologies.

EU developments

The European Commission has proposed a European Union (EU) regulation creating a new EU-wide corporate registration system, designed to establish companies with pan-EU rights, with a minimum of administrative requirements and expense. Under the system, entrepreneurs and companies can establish an ‘EU Inc’ company within 48 hours, for less than €100, with no minimum share capital requirements. They will have access to all member states through one company information submission, via an EU interface connecting national business registers; and later a central EU register. EU Inc will obtain national tax identification and VAT numbers without resubmitting paperwork, said the commission.

The European Commission is also consulting on possible revisions to the criteria of the EU Taxonomy, its classification system for sustainable economic activities, designed to steer investment towards green projects. The changes are supposed to make the taxonomy simpler and easier to use, covering forestry, environmental protection, manufacturing, energy, transport and construction projects, and more.

Cryptocurrency

The US’s Securities and Exchange Commission has released clarified guidance with the Commodity Futures Trading Commission, stressing that in future many crypto assets and coins will not be regulated as securities. This includes functional digital commodities such as Bitcoin and Ether (where holders do not expect investment profits); digital collectibles; digital tools; and stablecoins. However, digital tokenised securities, represented by a crypto asset, which may grow in value and where the record of ownership is maintained on a blockchain, will be regulated as securities.

Sustainability

The Platform on Sustainable Finance, an adviser to the European Commission, has called for European Sustainability Reporting Standards to be better integrated with other EU sustainable finance systems. This includes the EU taxonomy regulation, the EU sustainable finance disclosure regulation and the EU benchmark regulation, with more harmony regarding definitions, scopes and methodologies.

The Sustainability Standards Board of Japan (SSBJ) has amended its Scope 3 (supply chain) greenhouse gas emissions reporting requirements to align with the recent updates to the International Sustainability Standards Board’s (ISSB) IFRS S2 standard on climate reporting. These changes allow entities to limit their Category 15 disclosures regarding emissions associated with loans and investments. The SSBJ has been pursuing alignment with ISSB standards.

International standards

The International Federation of Accountants (IFAC) has revised its Statements of Membership Obligations (SMOs) 1–7, committing IFAC members to support the adoption and implementation of international standards, while conducting robust quality assurance and investigation backed by disciplinary systems. Changes include ensuring firms align with international quality management standards; encouraging more flexible pathways into the profession; and integration into their work on expanding public sector and sustainability reporting standards.

The International Auditing and Assurance Standards Board (IAASB) and International Ethics Standards Board for Accountants (IESBA) have established a joint user advisory group channelling consultation and feedback from financial statement consumers. This will help influence IAASB and IESBA decisions on priorities, projects and broader initiatives.

Public sector

IFAC and the Chartered Institute of Public Finance and Accountancy have released the 2026 International Framework: Good Governance in the Public Sector, guiding public sector entities towards defining and achieving intended outcomes while acting in the public interest.

IFRS for SMEs

The IFRS Foundation has published educational resources to help accountants and their clients learn, apply and implement the IFRS for SMEs Accounting Standard through learning modules on valuing intangible assets other than goodwill; and share-based payments.

Financial instruments

The International Organization of Securities Commissions is consulting on proposed good-practice guidance regarding over-the-counter (OTC) commodity derivatives markets. The reform will impact how information on OTC positions is collected.