One of the biggest challenges facing our profession is restoring public confidence in the value and quality of audit. It was a dominant theme in some of my most important engagements last week.
On Tuesday, I attended a roundtable meeting at the House of Commons – convened by the All Party Parliamentary Group on Accountancy, Business and Finance – on this issue. On Thursday and Friday, ICAEW’s Council met for our annual conference and this topic – and ICAEW’s response to the Kingman Review of the FRC - featured high on the agenda.
In the House of Commons, the conversation began with potential solutions, but it was quickly realised that we must fully understand the demand side of the problem before considering supply side solutions; we must see the problems through the same lens as investors and wider society if we are to come up with adequate and robust solutions.
At Council conference, we considered in depth the questions posed by Sir John Kingman for his review. It was a very lively discussion and I was struck by the wide range of experience we have on Council, from Big Four to sole practitioners; from those with experience of the SME market to non-executive directors with deep knowledge of corporate governance; from those with considerable experience in the investment market to those with extensive technical knowledge.
The conversation ranged well beyond the remit of the Kingman Review and is one of many that Council will have on these issues.
The high level of these discussions, and the time afforded to them, reflects the significance and urgency of the challenge at hand.
The Parliamentary Work and Pensions and BEIS Committees joint inquiry into the collapse of Carillion made for grim reading. The FRC’s report on the audit of BHS was equally grim. The criticisms were not just of audit but of corporate governance failings. We need to focus on both.
Project Flora has a wider remit than the Kingman Review and will look at the future of audit, at the expectation gap and at what stakeholders and society expect from audit. I hope that it will also look at how technology will impact on the future of audit.
As a profession we have faced criticism before. On tax, back in 2015 we faced a challenge from the then Chief Secretary to the Treasury to address the press, political and public criticism of aggressive tax avoidance. ICAEW and six other professional bodies responded with tougher joint guidance to members. The Law Society followed with new guidance to solicitors on tax avoidance. We faced up to the need to respond to criticism and to unmet expectations on tax and we must do so again now on audit.
If we are to restore trust in audit, in corporate governance and in our profession to the levels we all want to see, we have to listen to our critics to fully understand their concerns, we have to reflect and we have to act.
I overheard someone comment recently that we have seen it all before. Perhaps we have, but that is all the more reason to make sure that this time we put it right so that we can avoid having to hear it all over again.
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My opinion is the "depth" of audit work diminished when Letters of Representation were introduced, many years ago, resulting in less forensic auditing and lower audit fees for clients. It would be interesting to consider the increase in audit fees needed to cover more work required in the absence of Letters of Representation!
Well done and well said Paul. LIke you I recall all the criticism and complaints re the publication of updated guidance re PCRT. Sadly many members mischaracterised and misunderstood this. As you and I predicted at the time, the greater clarity afforded by the revised guidance has had no impact at all on the vast majority of qualified accountants. The PCRT has however had the desired effect of showing HMRC and Government that the professional bodies can be trusted to keep their own house in order.