UK audit debate: the world is watching
Public trust was the overarching theme at this year’s World Congress of Accountants (WCOA).
In fact, one of the keynotes was “The death of trust: accounting scandals that shocked the world” – sufficient to make the profession sit up and listen.
It was clear from conversations taking place both on and off the stage at WCOA, that the accountancy world is watching developments in the UK’s audit market with interest.
A series of reviews are currently underway in the UK including into the Financial Reporting Council, which is the profession’s regulator (known as the Kingman review); into the statutory audit market (the CMA review); and into the future of audit (the BEIS review).
The role and purpose of audit needs to be the primary focus of these inquires.
ICAS has already responded to the Kingman and CMA reviews and we will use these submissions as a basis for the BEIS review.
From the very start I have been clear that the role and purpose of audit needs to be the primary focus of these inquires.
In our response to the CMA, we looked at the requirements of audit and related corporate governance in other jurisdictions. This led us to highlight the potential benefits of introducing a UK version of the US’ Sarbanes-Oxley (SOX) requirements on internal control.
When the US enacted SOX in 2002 the UK accountancy profession’s response was generally dismissive of the approach. However, over time the mood has changed and the benefits of an increased focus on internal controls, both from management and auditors are now well recognised.
I do not believe that conflicts arising from the provision of non-audit services to audit clients have any impact on audit quality.
The BEIS inquiry will consider if conflicts of interest undermine trust in audit. I do not believe that conflicts arising from the provision of non-audit services to audit clients have any impact on audit quality. However, for FTSE 350 companies the only way to address the perception that they could have an impact, is to prohibit auditors from providing these services to audit clients. It’s a stance that Deloitte and KPMG, reportedly, share.
In our response to BEIS, we will again highlight that audit does not operate in a vacuum. In order to address the lack of trust in UK business, we need a holistic review of the corporate governance and corporate reporting frameworks, including assurance.
The audit market in the UK is undergoing one of its most thorough examinations in history. This is our chance to ensure that proper root analysis is undertaken to identify any weaknesses in the corporate reporting ecosystem.
Just as the US experience of SOX has given the UK food for thought, so too should the results of these reviews into audit help inform other nations when they, undoubtedly, react to their own challenges. Hopefully, the journey we are undertaking in the UK just now will deliver meaningful change and take us to the real destination – public trust regained.