ICAS CEO's letter to the FT
Bruce Cartwright CA, ICAS CEO, wrote to the Financial Times [paywall] regarding ICAS' response to Sir Donald Brydon’s ‘call for views’ on the quality and effectiveness of audit. Read the published letter below.
In response to Sir Donald Brydon’s ‘call for views’ on the quality and effectiveness of audit, ICAS has made it clear that the challenge to restore public trust in audit cannot be underestimated.
We believe that now is the time to build on the strong audit regime we currently have with a series of progressive measures which will to shape the future of audit in the UK.
Our proposals, we believe, will further enhance the UK’s respected governance framework.
What appears to be missing from the discussions is recognition that the responsibility for running an entity and for preparing its financial statements rests with the directors of that entity, in particular, the executive directors.
ICAS also believes there is a strong argument to introduce a proportionate UK version of the Sarbanes-Oxley (SOX) regime. This will ensure effective control and a sharper focus on the checks and balances that are in place to manage a business.
Of course, one needs to take into account the lessons learned when this regime was introduced into US corporates and to ensure that the approach is not too granular. Additionally, SOX must not be viewed solely as a compliance exercise. Rather, the introduction of greater requirements in relation to internal control must be viewed as being part of the long-term process to create value in the organisation, which ultimately benefits longer-term investors in the entity concerned.
The evidence in the US is that the SOX approach has helped to better promote the respective responsibilities of the directors and the auditors. The Kingman Review of the FRC also recognised the need for consideration to be given to the UK when introducing a framework around internal controls, learning from the US experience. This report also recommended that the new corporate regulator should be tasked with developing proposals for an effective enforcement regime for directors of Public Interest Entities (PIEs). There is merit in this recommendation, but the scope of this regime should cover all directors to be truly fair and equitable.
In summary, the combination of a proportionate UK version of SOX and greater accountability for all directors will go some way towards enhancing the UK corporate reporting ecosystem, and ultimately to restoring public trust.