Yesterday was not a good day for the accountancy profession. The latest joint hearing into Carillion by the Work and Pensions and the Business Select Committees produced some damning verdicts on the limitations of audit and the role it plays in corporate governance. Frank Field MP called the auditors ‘mere spectators’ to the company’s collapse: if anything, Rachel Reeves MP was even more scathing, commenting that ‘audits appear to be a colossal waste of time and money, fit only to provide false assurance’.
How should we reflect on and then respond to this? We have to start by acknowledging the needs of wider society and particularly, those with a stake in a business – investors, of course, but also employees, pensioners, suppliers and customers. If our profession is falling short of their expectations in some way, then that is our problem, not theirs. We need to show that we understand that, and then demonstrate the steps we are taking to address their concerns. In the case of audit, we do need to ask the question: ‘Is the service we provide today what is wanted, or does it need to change in some way?’ We may not like the answer we get. Of course, the issue is unlikely to be just audit: the governance, the systems and structures within which audit operates may need serious reform – but we must be prepared to play our part in achieving a better outcome all round. The alternative to evolution is extinction.
That is why I believe that what Michelle Hinchliffe, KPMG’s Head of Audit, said at yesterday’s Select Committee session was both correct and timely: ‘Perhaps an audit needs to do more. Perhaps auditors need to provide more ongoing assessments of the risks to businesses and not just a 12-month snapshot’. I would be surprised if the Select Committees did not build on that suggestion in their recommendations at the end of this inquiry. That would throw down the gauntlet to our profession - and I think, rightly.
With the Government and the FRC, ICAEW is ready to help accountancy rise to that challenge.
I'm a little worried (annoyed?) by the headline. The accountancy profession is a lot more than audit but the blog (and comments below) focus on the latter. It may be in this case that the real fault lay with the accountants in Carillion or elsewhere; certainly if the accounting had been right in the first place the auditors would not have needed to be hauled up in front of the committee.As an accountant "in industry" (ie. well removed from audit) I do feel we need to focus more on getting it right in the first place, rather than being fixated on whether auditors should have found the problem. Were accountants initially responsible qualified? Were they subject to undue pressure from non-financial management? Were they reckless or just incompetent? ICAEW must remember that less than half of its members actually work in audit, and should make sure that there are the right support mechanisms (partly but not entirely CPD) for those of us at the sharp end. And if it turns out that the fault does lie with the audit profession rather the wider accountancy profession, then please reflect that in the headline!