But the spectre of audit liability looms large in face of much needed change.
Auditors should report on risk, governance, the business model and other forward-looking information, finds a new report from ACCA (the Association of Chartered Certified Accountants), which gathers expert opinions from a series of round tables held during 2010 in key financial markets around the world.
The report, Reshaping the Audit for the New Global Economy (available from the Related documents box at the bottom of this page), 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.
”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,” said Ian Welch, ACCA head of policy.
”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 the 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, policy makers and other stakeholders set out a pathway 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.
But 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 among 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 small and medium-sized enterprises.
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.”
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NOTES TO EDITORS
ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.
We support our 140,000 members and 404,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers.
We work through a network of over 80 offices and centres and more than 8,000 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public-interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.
Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.
For further information, please contact:
Nick Cosgrove, ACCA Newsroom
+44 (0)20 7059 5989
+44 (0)7963 496 144
Helen Thompson, ACCA Newsroom
+44 (0)20 7059 5759
+44 (0)7725 498 654