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.
Scathing comments indeed by the MPs. A shock treatment, however, that provides an opportunity to reflect, and I agree, on the cost/benefit parameter of the audit.