ACCA makes case for auditors ahead of audit review
* The profession needs to maintain
and enhance the value of audit by expanding its scope.
* Risk management, corporate
governance arrangements and financial assumptions underlying the
business model are all matters which could be brought within the scope
of audit.
* The current model needs to develop
and ultimately may need to address the challenge of providing assurance
on real-time information.
* The work involved in audit reports
needs to be better communicated to stakeholders.
* The liability issue must be
addressed as this is a detriment to innovation and openness.
ACCA (the Association of Chartered Certified Accountants) has held a
series of roundtable events bringing together investors, banks,
auditors, regulators and other stakeholders as part of its activities
concerning the future of audit.
ACCA policy head Ian Welch says: 'Auditors largely escaped attention
in the first phase of the credit crunch and its aftermath.
This respite is now over and the profession is facing searching
questions from regulators and commentators.
ACCA still believes that qualified auditors, whose training engenders
qualities of professional scepticism and independence of thought, have a
key role to play in instilling confidence in business.
So to play our part in finding ways the value of audit can be
enhanced, we have gone to find out first-hand stakeholders' views in
different markets.'
In its recent paper, 'Restating the Value of Audit', ACCA argued that
the time has come to consider enhancing and expanding the role of the
auditor.
Among a number of new directions that the audit function could
usefully take in future, auditors could add value by addressing and
reporting on matters such as the assumptions underlying companies'
business models and the effectiveness of their risk management
practices.
And the effectiveness of corporate governance structures - the
catastrophic failure of which ACCA considers lay at the root of the
financial crisis - must now also come within the scope of audit.
As shareholdings in companies become more dispersed, so the role of
audit is more important as these diverse investors need an auditor to
represent their interests.
The roundtable events also highlighted the importance of independent
assurance for third parties. Audit is clearly valued by ratings agencies
and banks in lending decisions - so in an era where everyone is worried
about lack of lending to SMEs, ACCA believes it is fair to conclude that
less audit equals less lending.
ACCA considers that while the focus in audit will always, inevitably,
be on its relevance to large businesses, we must not forget the needs of
small entities. We believe that stratification of the audit according to
scale and complexity, 'unbundling' the audit product from its lengthy
checklists where appropriate, and focusing on agreed areas of concern or
risk to the business, would be a good way forward.
The value of audit, it has also been argued at the roundtable events,
is that makes companies and directors accountable for the statements
that they make. This gives comfort to shareholders.
There are important secondary benefits from audit in terms of the
discipline it imposes on companies, the deterrence of fraud, and comfort
on going concern, all of which would be lost if there were no audit.
And it should be remembered that if one sizeable local company goes
down, another 50 could be affected - so the role of audit in society and
the wider economy is beneficial.
Discussions also centred on the need for communication to be central
to audit professionals' efforts if the value of their trade is to be
appreciated.
Ian Welch explains: 'We must now address the issue of communicating
to stakeholders more of the considerable work which goes on behind the
scenes into an audit opinion. Directors and audit committees see this
effort but the investors who are paying for it do not.
ACCA believes the audit profession will be willing to respond to the
challenge of an enhanced audit role - which may ultimately have to adapt
to more frequent or real-time reporting of financial information - but
the quid pro quo for assumption of new responsibilities has to be a
resolution of the liability issue.
Ian Welch concludes: 'It is clear from our events that the audit
liability issue must be addressed as this has a deadening effect on
innovation.
The firms take on a wider role in their auditing of public sector
clients - rather than just assessing financial statements firms examine
aspects of governance and arrangements to secure value for money for
taxpayers. It can be no co-incidence that the risk of litigation is
lower in this sector.
'If this outcome can be achieved as part of the wider enhancement
process we believe that we will create a more confident and supportive
audit profession which will help economic recovery: it is in all our
interests to bring this about.'
(ACCA) |