The outgoing London Stock Exchange Group chair said he will focus on three areas: What is an audit? Who is it for? And does it meet the requirements?
It seems like there are “two issues being debated in Britain today, Brexit and audit”, and there is an “intense scrutiny” from politicians and the public, he told an audience of audit profession leaders at the City & Financial Global event, Audit Reform in the UK.
He added that he wouldn’t be considering the role of joint audit but that many of the recommendations laid out in the BEIS committee report last week “are in scope”. He stressed that his review must not be used as a justification for the delay of any reforms.
Sir Donald was appointed by business secretary Greg Clark to look at the quality of audits delivered by UK auditors and how they could be made more effective and reputable – as well as how to better meet public, shareholder and investor expectations, following a number of high-profile failures.
The review, he said, requires a “back-to-basics approach combined with an imaginative forward look. The result must be a more useful and forward-looking audit. The public interest is clear. As noted recently, ‘Most people will never read an auditor’s opinion on a company’s accounts. But tens of millions of people depend on robust and high-quality audits'”.
Sir Donald said he was encouraged by the support he has received from the government and that he sees “the prospect of real change”. He was, however, keen to stress that “not everything is broken”, adding that he will be proportionate throughout.
“Many audits are conducted to a very high quality. In many areas the UK has led the world in the development of audit and I am mindful not to discard what is good in the search for what is better,” he explained.
He noted that his review will not seek to repeat or hinder the work of the Kingman or Competition and Markets Authority reviews but that inevitably there would be some crossover.
"Where these reviews have concentrated on the market delivery mechanism for audit and the regulation of the providers and the ultimate product, this review will endeavour to determine what product would be of value irrespective of the delivery and regulatory mechanism,” he said.
In the document published today the review asks for views, information and evidence on, in particular:
1) The purpose of audit and for whom it should be carried out
2) Whether its scope and purpose should be widened and strengthened to meet changing expectations of audit
3) How the quality of the audit process and product could be improved
4) Whether audit findings could be better communicated
5) The role of audit within wider business assurance and in relation to directors’ legal responsibilities
6) The role of audit in detecting fraud
7) Auditor liability
ICAEW chief executive Michael Izza, who was taking part in a panel discussion at the event, said he “very much welcomed” the scope of the review. He sees it as a chance for the UK to once again “set the global agenda” and lead on audit for the next few decades. Izza added that there currently is “an incredible amount” of international interest in the UK market and how it deals with its challenges.
Michelle Hinchcliffe, head of audit at KPMG UK, was “very encouraged by the areas of focus and scope”. She said that “industry is suffering” with so much going on around it at the moment.
Bruce Cartwright, ICAS chief executive, said the Brydon review is the “real deal” and “matters the most”. He said that audit reform was an itch that “had become a sore” but that now “felt for the first time that it was being scratched”.
Deloitte senior partner and CEO David Sproul agreed that this presents an opportunity for the UK which “has lost some respect” in recent years “for a number for reasons”.
Out-going head of the Financial Reporting Council Stephen Haddrill also offered his “support and enthusiasm” for the review.