It is often overlooked that the UK is the home of the modern global accountancy profession. Indeed, many of those who founded the largest international audit firms were members of ICAEW. And it is still where regulators and professional bodies look for leadership when it comes to the future.
That’s why today’s thematic review from the Financial Reporting Council (FRC) is so significant. To the FRC’s credit, it is one of the first regulators to undertake such a review and to publish its findings.
The review reflects the commitment that I see from audit firms, to the values and behaviours that drive high-quality audit. It shows they want to improve and learn, not just when things go wrong but also when things go right. Just as importantly, it sets out a need for firms to be more transparent when it comes to culture, to give greater visibility to what they are doing and to demonstrate they understand the broader value to society at large of what they do. I hope that, on the back of this review, firms will seize the opportunity to learn from each other and when the FRC looks at this again in three years, they will see the dial has moved in the right direction.
As a profession, auditors have been in the spotlight in recent months. As I have blogged several times, we still have some way to go, not just to look at what we can do differently to meet the needs of the societies we serve, but to regain the trust of those societies. We also need to do more to increase competition and choice for PIE audits, removing barriers to entry for those firms beyond the Big Four who currently view the risks involved as too great.
I remain convinced that our profession is fundamentally strong, that auditors want to do the best jobs they can and that, as we continually seek to evolve and improve what we do, we can continue to show leadership to the profession around the world.
I agree with many of the sentiments below. Transaction auditing should massively leverage analytics and technology; external auditors should also leverage work of Internal Audit and where this is not robust or sufficient this should raised at least with audit committees. However looking ay many of past and recent corporate failures there root causes have been more to do with management override, poor cultures especially when the balance is skewed by remuneration and incentives away from proper regard for shareholders and other stakeholders eg employees, aggressive use of the tolerance levels afforded by accounting policies and related areas of judgment. A great deal of lip service has been afforded to these areas but the well documented and continued annoyance at the "lenient" and lengthy follow up to such failures indicates this has not gained traction or satisfaction with the wider public.
Think the thematic review misses the point. One of the main areas of judgement in an Audit process is the amount of time and depth spent on a transactions based audit and rigorous examination of what isn't in the balance sheet . This used to be called under and overstatement testing and involved a judgement also on materiality When you see the amount of reported earnings some Senior Partners disclose then you query whether these rewards could not be spent on lower level work by actually more, not less transactions testing. To go through twelve months trading in a matter of weeks is a big task . Partners rewards need to be proportional to the risk and I fear that ignorance may be too blissful. In the old days it used to be called 'tick it and risk it' If Audit is to be the main assurance provider that it purports to be then those at the top of the profession really do need to sharpen their pencils and reviewing whether a ' risk based' approach rather than a 'transactions based approach is correct.. I think there is a balance here which accountants should recognise and the infatuation with fee income and resource efficiencies within the audit profession has perhaps clouded judgement about the depth and quality required to give an opinion. Many Company directors would be appalled at the depth of audit , especially when they ask questions about materiality and what levels the Auditors are working to. S too would be shareholders and general public get oeb appauled if they asked theaudit Chairm
I am very old fashioned, but I wonder if we do enough old time transaction auditing, verifying the underlying facts.
Audit culture should involve some scepticism, caution and prudence. It should also involve quite a lot of checking things, not just relying on the risk percentages. History lessons with reference to e.g.SSAP2 might help.
The Institute should be charging the "big four" over recent events, not blogging how good they are. That is why we end up with the profession being pilloried by journalists and politicians.
The founding fathers of the Institute may be turning in their graves, or maybe not. I do not know.