Restating the value of audit

The role of audit is under heightened scrutiny. The unprecedented global financial upheaval of the past two years has seen many commentators questioning the value of audit.

While attention has naturally been most focused on the large end of the audit profession, which is involved with the banks and other major financial institutions, there are also important issues at the smaller end of the audit market.

In its new policypaper, entitled Restating the Value of Audit, ACCA (the Association of Chartered Certified Accountants)argues that against this backdrop of change, it is vital for the accountancy profession to re-examine the role of audit and to question whether a sufficiently strong case is being put forward for the benefits that audit can provide to businesses, the economy and society.

ACCA firmly believes that audit has a keyrole to play as a source of public confidence in financial reporting but note that there is currently little published research which seeks to demonstrate the value of audit in promoting business trust. ACCA is seeking to change this situation by holding high-level roundtable events on the future direction of audit in a wide range of markets, and having recently spoken with influential accountants and other business leaders around the world ACCA puts forward the following agenda as a contribution to the ongoing debate.

First, while ACCA rejects claims from those critics who argue that the audit model is broken, ACCA proposes that the profession should develop approaches in respect of larger entity audits which pay more heed to the needs of a wider circle of stakeholders than simply current and future investors, and hence meet better the demands of the market.

This, ACCA believes, will be achieved by extending the scope of the audit from giving an opinion on financial statements alone to engaging on issues such as risk management, the effectiveness of corporate governance, and testing the assumptions around an organization's business model and its likely sustainability.

While of course forms of reporting must be appropriate to size and complexity, ACCA believes that assurance can add value to all businesses to instill and maintain confidence and trust among their many stakeholders and to identify where there are areas for enhanced business performance.

At the smaller end of the market, a continued drive should be made to establish appropriate segmentation of services for the benefit of small businesses.

New forms of assurance will continue to emerge, some driven by regulation and others by voluntary means and market demands. But the underlying essentials of assurance, that of bringing an independent and quizzical assessment of a business, will continue to add value to SMEs as they emerge from the economic downturn and help provide confidence in obtaining access to finance.

Audit-type skills are intrinsic to the training of a professional accountant, providing insight and experience of business models and engendering values of professional skepticism and independence of thought which enable accountants to advise businesses well. 'Unbundling' the audit product from its lengthy checklists, where appropriate, could be a key to providing assurance and business confidence in areas of particular concern or risk according to the needs of the individual company.

Procedures could be agreed with audit-exempt businesses, which would add value by exploring areas of concern or risk to management.

It is this sort of innovative approach to the requirements of business which will maintain the value of audit. New value propositions that are driven by market demand will be more enduring than those that cling on to regulatory or statutory backing for their existence.

The profession can best face down the skeptics by being bold, progressive and establishing new assurance offerings which meet the needs of businesses, stakeholders and wider society.

It is important that it does, because the economy needs the confidence that audit can engender. It is now down to the profession to demonstrate that value. (ACCA)