Opinion
17 Jul 2019 04:14pm

Restoring trust in audit: Fiona Wilkinson

A very current issue, and what is surely the biggest challenge facing our profession at the moment, is how to restore public trust in audit. It’s an issue which is close to my heart, not just as ICAEW president, but also personally

I’ve spent the whole of my working life in audit – 11 years with a Big Four firm and latterly as a consultant to small and medium-sized practices. It seems to me that a number of misconceptions have emerged during the audit debate that are now widely regarded as truths. One is the statement – which was reiterated at a recent Select Committee hearing – that 27% of audits carried out by the Big Four are faulty.

This is patently not true. It stems from the Financial Reporting Council’s annual quality reviews of the six largest firms, which revealed that 27% of the audits inspected required more than slight improvements. Putting this into context: last year, the FRC inspected 145 individual audits out of a total of 2,350 public interest entity (PIE) audits. In other words, it looked at 6.2% of PIE audits and found 0.22% wanting.

Now, I’m not defending bad audit work but to extrapolate from those figures that more than a quarter of audits are significantly flawed is clearly unfair and wrong. We also need to remind the world that when companies fail unexpectedly, it’s not primarily the fault of the auditors. It’s a failure of corporate governance and in the first instance the fault of the directors.

They should know when a company is no longer a going concern, but are they being transparent enough with the auditors? Possibly not. It seems to me that we need to step up the pace of culture change in the corporate world. This is why encouraging diversity (another issue close to my heart) is so important. We need people in the boardroom who not only bring insight from a range of social, educational and ethnic backgrounds but who are prepared to challenge “group think”.

In making changes, though, we must not lose sight of proportionality. Let us not forget that as well as those PIE audits, there are several thousand more being successfully carried out for small and medium-sized businesses. Regulation must always be risk-based and closely aligned to the nature of a business. So a small business that chooses to have an audit should not have to face the same hurdles as a bank.

There is recognition now internationally that auditing standards are not fit for purpose for less complex entities and I welcome the International Auditing and Assurance Standards Board’s discussion paper on the matter. They are asking for input from a wide range of people. ICAEW will certainly be responding and I would urge all auditors of SMEs and not-for-profit entities to do the same.

Events

24 July
Lean Accounting – Making Your Finance More Efficient

Finance leaders are expected to deliver a growing array of reports and business information with faster turnaround and lower costs. Explore the growing trend for using lean tools to streamline and enhance productivity and effectiveness within the finance function. London

31 July
IFRS Leases

First in a series of five seminars on the implementation of the new leasing standard. This practical course explains how to manage the risks and challenges that the new standard brings with it, including dealing with stakeholders. London

7 August
Off Payroll In The Private Sector

From April 2020 the operation of IR35, or off-payroll working, will change in the private sector. This webinar unpicks the draft legislation, which is expected to be published in the next few months, and offers practical tips on how to prepare for the change.

7 August
ICAEW Thought Leadership Roadshow

Will Bitcoin take over the world? Many say it’s the next step in the evolution of money as cash usage diminishes and new ways of paying prevail. Crypto-currencies also offer the advantages of financial privacy and peer-to-peer interactions. But not all agree. ICAEW considers the pros and cons in this future of money event. Malacca, Malaysia

3 September
The compliant practitioner

This half-day course aims to update practitioners on practice administration issues, drawing on feedback from the professional bodies, risk management and client service, recent technical changes and the lessons to be learnt from disciplinary cases. Penrith

 

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