John Davies, head of business law at ACCA, said: “While it is right that the role of audit be re-assessed in the light of the financial crisis, and while there is a case for reforming certain aspects of audit, the basic model is not broken and any recommendations which result from the review should focus on ways of enhancing the benefits that audit brings.”
In its response, ACCA says that there should be no presumption taken from the paper that audit generally speaking has failed. Mr Davies adds: “The value of audit, for businesses, audit committees, investors and others lies in the credibility that the process adds to a set of financial statements. Recent research from ACCA suggests that stakeholders of various kinds continue to have a high regard for the audit process and the assurance it provides to each of them. The current model remains, in our view, fit for purpose. However, this is not to say that the profession should resist change. On the contrary, opportunities for enhancing the value of audit should be embraced.”
Many stakeholders say that the audit should evolve to address new matters in order to provide additional benefits to them. ACCA has actively engaged with its membership around the world to gain their views on the direction in which audit should go. Strong support was expressed from auditors, businesses and audit committee members alike for the development of the auditor's role to cover areas such as a company's internal controls, risk management arrangements and the financial assumptions underlying a company's business model.
John Davies adds: “ACCA agrees that the profession should be open to the idea of expanding the scope of audit so as to respond to emerging market demands. We agree with many of the individual points made in the Commission’s paper. We agree that measures should be taken to address the issue of market concentration although those measures must remain consistent with companies' freedom to make their own choice of auditor.”
Contrary to this, ACCA does not agree that the law should intervene to forbid auditors to provide additional services to their audit clients - as long as auditors, and the audit committees that they deal with, are satisfied that non-audit services do not compromise independence, ACCA considers that the existing ethical rules are adequate to regulate this matter.
John Davies concludes: “What we want to emerge from this review, above all else, is a blueprint for ensuring that the continuing problem of the expectations gap is resolved. We believe that there is a case for encouraging auditors to communicate more, and more effectively, about what they do. If shareholders, audit committees and third parties have a better understanding of the scope of the auditor's role that could help to avoid many misunderstandings."
“What also needs to be borne in mind by the Commission is that audit exists within a wider framework of corporate reporting. That framework has itself been widely criticised for being opaque and overly complex. This wider context needs to be understood because auditors cannot achieve improvements for stakeholders in isolation from it.”
In this context ACCA held a roundtable on rethinking the value of audit; towards better governance and better adaptation to the markets and the needs of business in November and produced new report gathering expert opinions from a series of roundtables held during 2010 in key financial markets around the world entitled Reshaping the audit for the new global economy. The report stresses that auditors should report on risk, governance, the business model and other forward looking information.
© ACCA - Association of Chartered Certified Accountants
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