Commenting on Sir Donald Brydon's report on the future of audit, Maggie McGhee, ACCA executive director - governance, said:
'ACCA welcomes Sir Donald Brydon’s review and its ambitious vision for the future of audit, and looks forward to playing a full role as Government develops its proposed response.
'Improving audit quality has underpinned all of ACCA’s contributions to the future of audit debate. It is critical when considering what recommendations to implement that the government places audit quality at the centre of its considerations.
'The public interest is at the heart of the ACCA’s work. It is vital that the UK economy has efficient and effective capital markets and that there is confidence in the corporate framework, with real transparency of the health of a company through effective forms of audit and wider assurance.'
On the key areas of Sir Donald’s report:
ARGA - the new regulator:
'Following the recommendations made by Sir John Kingman, we expect the government to replace the FRC with the Audit, Reporting and Governance Authority (ARGA). Many of Brydon’s recommendations fall to ARGA to implement. It is therefore of fundamental importance that ARGA is established as soon as possible and has the resources and capability to deliver.
'Sir Donald’s recommendation that ARGA, together with auditors and the Plain English Campaign, produce a concise guide to audit, explaining clearly what the different elements of an audit report mean and/or do not mean will be critical in addressing elements of the expectation gap.
'It is important that next steps following this review recognise the FRC’s restructuring efforts around leadership.
'Moreover, ACCA believes there must be collaboration between all parties in the financial reporting chain - most notably on warning signals. Stronger links should also be in place between ARGA/ the FRC and other with the other UK regulatory bodies such as FCA, PRA, Pensions Regulator. This is to ensure timely and co-ordinated action can be taken to avoid shocks to the economy and markets.'
Fraud and director responsibilities:
'Sir Donald Brydon review emphasises the need for audit to be more informative and better serve the wider public interest. The survey result in our expectation gap research identified that the general public have high expectations from auditors when it comes to detecting and reporting fraud; and a substantial number of respondents believe that the audit process can and should play an integral role in company safeguarding.
'Across Sir Donald Brydon’s recommendations, the successful reform of audit is dependent on the implementation of reforms across the wider reporting and governance ecosystem.
'Audit can ultimately only meet the needs of the user if reporting requirements also evolve to meet their needs. As reflected in Sir Donald’s recommendations, the responsibilities and accountability of directors and audit committees are critical.'
'Brydon’s proposal to champion and recognise the need for specialists within the audit sector points to a multidisciplinary profession. This reflects the ACCA’s research findings and is in our view a fundamental building block for a quality audit both now and through the vision presented by Sir Donald Brydon.'
The new corporate auditing profession:
'There is a need for greater clarity on what is envisioned for the new corporate auditor profession – and the basis on which it will enhance the profession. The Government, the regulator, the professional accountancy bodies and the audit firms together have a critical role to play in ensuring that the audit profession, however configured, remains attractive. It will be important to ensure that the valuable and transferable skills developed by people working in audit continue to be valued by wider business.'
'An enhanced, high quality audit can only be delivered if the profession is attractive to our next generation of auditor. Although this issue is referred to in Sir Donald’s report, ACCA believes that a greater emphasis needs to be placed on the attractiveness of the audit profession – and most notably, how Sir Donald’s recommendations will help to further enhance it. Audit firms of all sizes including the big four firms are increasingly struggling to retain their best talent in audit.
'ACCA believes in order to improve audit quality, a holistic view of all the reviews of the audit profession is key consideration. Alignment of the Kingman, CMA and Brydon reviews must therefore be taken into account before deciding which recommendations to take forward.'
ACCA’s full submission to Sir Donald Brydon’s review can be found here
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