The report "Reshaping the audit for the new global economy" reflects discussions held in the UK, Poland, Singapore, Ukraine, Brussels, Zambia, and Malaysia about the future of audit during a year in which the role of audit has come under increasing regulatory scrutiny. Investors, corporates, banks, regulators, auditors and other stakeholders were brought together to give their views.
Ian Welch, head of policy at ACCA, says: "It was clear from our events that the audit function is still believed to add considerable value to business by increasing confidence in financial statements. But there was also a clear sense of frustration that more could be done to meet stakeholder needs and that the considerable work that goes into an audit should be better communicated. And the fact that there had been some banking and corporate failures in which auditors had not apparently been able to provide any warnings to stakeholders of looming problems was a cause for concern. But they key problem is to find an answer to the liability issue. Delegates consistently stated that this was a roadblock to innovation and to auditors taking on further responsibilities. The global round-table series has shown there is, overall, a positive view of what audit can bring to economies. It is essential in the years ahead that the profession, policymakers and other stakeholders set out a path way to overcoming some of the issues this series has identified."
Some of the key findings were:
- Audit needs to be broadened in scope – as well as reporting on historic financial statements, auditors can meet stakeholders' needs better by incorporating into the audit report a statement of responsibilities for reviewing risk management and governance arrangements. They should also report on the assumptions underlying the business model and whether these seem reasonable or optimistic.
- Greater communication of findings is needed for investors and other stakeholders. Ways need to be found to enable 'red flags' to be raised when auditors become aware of problems. A two-page ‘binary’ audit report is not sufficient.
- The current audit model needs to evolve and ultimately include reporting on real-time information. More timely reporting helps companies improve and maintain strong credit ratings.
- Auditor liability issues need to be addressed if real change is to happen; like all professional advisers, auditors are very conscious of the risk they run in providing their services to business clients. Change cannot happen if auditors considered that they would thereby be exposing themselves to a level of liability which was unreasonable and which exceeded the business benefit of performing the audit.
- There was concern amongst some delegates about auditors needing to demonstrate ethics, scepticism and independence. It was essential, participants said, that auditors applied the spirit not just the letter of standards and stood up for what was morally right. In some markets there were also fears of talented people being lost to the profession if fees were not raised to economic levels.
- Audit committees are increasingly seen as critical to ensuring the organisation has strong and effective processes relating to independence, internal control, risk management, compliance, ethics, and financial disclosures.
- On smaller enterprises, the challenge for the profession, in the face of regulatory pressure for scrapping reporting requirements, will be to establish successful scaled-down audit procedures for SMEs.
- Many felt that there needed to be increased dialogue between auditor and regulator. Audit committees and auditors should liaise with regulators on key industry trends and risks.
Ian Welch concludes: "For all the issues and concerns raised over the course of a year, there was no serious questioning of the importance of the role of audit or whether it was necessary. The profession can meet the needs of its stakeholders by being willing to take on wider responsibilities in terms of audit scope. But at every round table the spectre of liability hung like a dead-weight across discussion. More pro-activity and giving opinions on different areas equals more potential for litigation. In theory the market should find a solution. In reality governments must step in and end the log-jam by giving auditors the reasonable protection that will enable them to break free from the boiler-plate language so many participants complained about."
Press release
© ACCA - Association of Chartered Certified Accountants
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