The decision by the FRC not to pursue the HBOS investigation has reignited the debate about the role of audit. The intervention of the Treasury Select Committee has understandably increased public awareness of a discussion that has exercised the profession for the last decade; but the high profile, and high feelings, around the case risk obscuring the very real improvements we have been working towards for the last ten years.
Following the financial crisis, the audit profession recognised that there was a gap – if not a chasm – between the purpose of the audit and what the public believe it is for. ICAEW, as a Chartered Body, has a duty to put the public interest first and foremost, which is why we have been working with the firms, the FRC, and other audit stakeholders to reinforce and safeguard audit quality. The Audit Firm Governance Code, which was launched in 2010 and revised in 2016, is just one manifestation of how this has taken shape, and it is telling that countries around the world are now looking to emulate it. We have driven regular and improved dialogue between auditors of banks and insurers and the prudential regulator to improve the understanding of the roles and responsibility of both parties. We have engaged in horizon scanning and worked to create new assurance tools like our frameworks for LIOBOR and capital ratios. We are currently looking carefully at how radical new technological developments, such as big data, Artificial Intelligence and machine learning, can enhance the audit offering and minimise the scope for human error whilst enabling auditors to better deliver their service.
It is clear that there were lessons to be learned, and would be premature and self-regarding to imagine that there are not still things that must change. But change has happened for the better, and is continuing. Yes, audit must constantly scrutinise and re-evaluate the role it plays in business and society. Yes, we must always seek to improve audit quality, and underpin trust in business. The danger of focussing on individual cases – and of attempting to simplify discussions and investigations which are often highly complex and comprehensive – is that it risks inflaming public opinion and provoking under-examined responses with unintended consequences.
The cry of “something must be done!” is too often siren to policy-makers who seek, from the best of intentions, the quickest fix. To paraphrase HL Mencken, no matter how complex the problem, it is a certainty that there is an answer that is neat, simple, plausible, and wrong.
Excellent, helpful reminder thank you. Whilst I welcome "duty to put the public interest first and foremost" this is implied and perhaps we could be clearer on it. Maybe a topic worthy of more internal debate and clarifying further with members, together with rationale. My own view is that if we put members ahead of the public we will soon fall apart, whereas if we put the public interest first, we will serve our members and keep our profession strong. Sorry, but what is LIOBOR? Thanks for the call to keep scrutinising and seeking to improve audit quality, it is such as plank of security in a world of falling trust. Keep up the good work, please, ICAEW & auditors.