UK needs Sarbanes-Oxley style regime says ICAS
ICAS is calling for the UK to implement a US-style Sarbanes-Oxley regime on internal controls, to make audit fit for purpose for the 21st century
In its response to Sir Donald Brydon’s ‘call for views’ on the quality and effectiveness of audit, ICAS is also urging for increased transparency and greater accountability for directors, as part of an overhaul of the UK’s corporate reporting ecosystem.
Bruce Cartwright CA, ICAS CEO, said:
“The importance of restoring public trust in audit cannot be underestimated, and ICAS is proud to be playing a leading role in this area.
“The time is now to build on the strong audit regime we already have and this is why we are calling for evolutionary change to shape the future of audit in the UK. Our proposals will further enhance the UK’s respected governance framework.”
ICAS has issued a number of recommendations as part of its response, including:
Internal controls
There is an opportunity to learn from the US experience. ICAS believes there is a strong argument to introduce a proportionate UK version of the Sarbanes-Oxley regime. This will bring a stronger focus over the controls and the checks and balances that are in place to manage a business. This approach also re-emphasises that responsibility for the preparation of financial statements rest with the directors of the entity.
Roles and responsibilities
The inclusion of a broader responsibilities chart at the front of the annual report, and/or on a company website, may help to better convey to stakeholders the respective responsibilities of the key players, including the directors and auditors.
As recognised by the Kingman review, there is a need for an effective enforcement regime for directors of public interest entities. However, the scope of this regime should cover all directors, and these reforms should be progressed as soon as possible.
Mandating electronic annual reports
In order to aide transparency, consideration should be given to mandating searchable online annual reports.
A fully electronic model would provide many considerable benefits to users including making it easier to highlight matters such as which parts of the annual report had been subject to assurance and the level thereof.
There are of course issues that would need to be addressed but such a move would certainly help to reduce the expectation gap.
Publication of assurance maps
Consideration could be given by the new regulator in publishing what it sees as the generic accountability and assurance model for corporate UK, then requiring each company to present their own version of this as part of the description of their business model in the annual report.
Greater transparency over the assurance gained by boards of directors over many different aspects of the business would also be a positive step.
Assurance on KPIs
Key performance indicators (KPIs) have increasingly become a measure by which corporates communicate their performance. Auditors should therefore be asked to provide assurance over KPIs. This would not be on whether the KPIs are the right ones to assess the performance of an entity but rather, over whether they had been compiled appropriately.
ICAS’ full response can be found here.