ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Business and governance
    5. Charities
    6. Coronavirus
    7. Corporate and financial reporting
    8. Cyber security
    9. Ethics
    10. Insolvency
    11. ICAS Research
    12. Pensions
    13. Practice
    14. Public sector
    15. Sustainability
    16. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

ICAS response to Brydon Review ‘Call for Views’ on the quality and effectiveness of audit

Glasses on notebook
  • LinkedIn (opens new window)
  • Twitter (opens new window)
James Barbour By James Barbour, Director, Policy Leadership

12 June 2019

Key points:

  • ICAS has responded to Sir Donald Brydon’s ‘Call for Views’ on the Quality and Effectiveness of Audit.

  • ICAS believes that given the importance of internal controls and experience of the US regime, consideration should be given to introducing a proportionate UK version of the Sarbanes Oxley framework.

  • ICAS believes that consideration could be given by the new corporate 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.

A summary of the key points made in the ICAS response is included below. The response focuses specifically on the audit of public interest entities (PIEs).

Key points in submission

It is only by giving due consideration to the role and purpose of statutory audit in the context of the broader corporate governance and corporate reporting environment that significant changes can be identified for consideration and, if supported, implemented.

Roles and responsibilities

The core issues that ICAS believes the public and government want to see addressed are how to improve the quality of audit and, by doing so, help to ensure fewer surprise corporate failures. What appears to be missing from the current debate 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. 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.

Accountability of directors

ICAS welcomes the recommendations in the Kingman Review that the new regulator should be tasked with developing proposals for an effective enforcement regime for directors of PIEs.  However, ICAS believes that the scope of this regime should cover all directors, and that these reforms should be progressed as soon as possible.

Internal controls

Given the importance of internal controls and experience of the US regime, consideration should be given to introducing a proportionate UK version of the Sarbanes Oxley framework. This will help to better promote the responsibilities of directors and auditors.

Increased transparency

Greater transparency over the assurance gained by boards of directors over many different aspects of the business would be a positive step. 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.

Given the level of judgement found in the financial statements, the audit committee should set out the key assumptions and the acceptable range that they considered when assessing key judgements made by management. This will help users form their own assessments as to whether a company is being aggressive or conservative in its judgements. Whilst extended audit reports have been viewed as useful with the inclusion of key audit findings, more graduated audit reports would further increase their usefulness. Requiring auditors to provide this detail in their audit reports (including what was said in the prior year) would further help inform users on the judgements made by management and where they sit on a range that varies from aggressive to conservative.

The primary responsibility for assessing whether an entity is a going concern rests with the directors. More detailed and considered disclosures should be required from the directors to explain why they believe an entity is a going concern. This would then facilitate requiring more from the auditor. The key is to provide greater transparency to avoid “surprise failures” rather than failures.

The discipline introduced by, and the current disclosures on, viability are important and should remain. However, these disclosures by directors should provide greater transparency and specificity (e.g. quantified sensitivity testing information/minimum cash requirements/liquidity statements etc).

Greater shareholder engagement

It is incumbent upon shareholders to engage with audit committees of their investee companies. While investors engage on matters relevant to the remuneration committee, there is little or no engagement on the matters addressed by the audit committee which arguably go to the heart of the quality of their investments. Before the shareholders focus on the auditors, they should address their communications through the audit committee.

Broader assurance

Key performance indicators (KPIs) have increasingly become a measure by which corporates communicate their performance. ICAS believes that auditors should be asked to provide assurance over KPIs. This would not question whether the KPIs are the right ones to assess the performance of an entity but rather if they have been compiled appropriately.

There would be benefit in getting directors to explain why they believe the annual report is fair, balanced and understandable (FBU). The current role of the auditor is to report by exception where they do not believe that to be the case. It is not clear, however, what level of assurance, if any, the auditor is providing over the directors’ FBU assertion. A direct statement clearly articulating the level of assurance obtained by the auditors would provide increased transparency and clarity over this matter. The same approach could also be applied to other matters where the auditor is required to report by exception.

Mandating electronic annual reports

In order to aide transparency, consideration could 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.

2022-11-mitigo 2022-11-mitigo
ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: