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.
You are right to be cynical, Lydia. Surely, more of the same is the last thing we need here. And surely the people who are making fortunes out of the broken system are the last people we should be listening to when it comes to fixing it. For what it is worth my own view is that we need to reach out more to our Members in Business. We need a bottom up solution to this problem so that Chartered Accountants can be leaders in assessing risk and championing risk mitigation practices from inside the business not outside the business. I believe ICAEW has an important role to play here in building confidence in members who are often isolated and under pressure to play down the reckless behaviour of their peers. I think we need to increase our education programmes that target Business Development Skills so that Chartered Accountants can become thought leaders in how to finance and grow businesses in a sustainable way.
In those cases the accounting teams were no doubt very accurately executing the policies they were told to implement. Maybe the time has come to ditch all the double checking of the work of competent corporate accountants and instead focus on reviewing the business economics and challenging the dodgy policies and management interpretation of the numbers.
Everyone here is assuming auditors need to do "more" and get more fees
Everyone here seems to assume that it is about auditors doing "more" which will mean more fees. Surely it is about doing something different. The detailed testing of a balance sheet and even the controls review approach would not have caught the big scandals
http://www.audit-scotland.gov.uk/docs/corp/2015/as_150511_public_audit_scotland.pdf You might be interested to know we went back to basics and produced this short statement in 2015, which captures the wider remit of the public sector auditor.