Enhance the role of audit, say global finance experts
Enhance the role of audit, say global finance experts
But the spectre of audit liability looms large in face of much needed change
Audit adds considerable value to business by increasing confidence ion financial statements, finds a new report from ACCA (the Association of Chartered Certified Accountants) which gathers expert opinions from a series of roundtables held during 2010 in key financial markets around the world, including Singapore.
The report, Reshaping the audit for the new global economy, reflects discussions also held in the UK, Poland, Malaysia, Ukraine, Brussels and Zambia 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.
Participants in the global roundtables series generally agreed that while audit as currently constituted added considerable value to business, there was also more that could be done by expanding its scope to include reporting on areas such as risk, governance and assumptions underlying the business model. But Singapore delegates were more cautious about commenting on such forward-looking information, given the inherent unpredictability of such data.
Darryl Wee, head of ACCA Singapore, said: "In Singapore, concern was expressed about the possible future involvement of auditors in commenting on prospective information, given the inherent unpredictability of that sort of data. Delegates here took the view that auditors should be expected to provide only limited comfort on these matters, as well as on assumptions made by directors and the likely outcomes of those assumptions."
But in Singapore as with the other events, it was stressed that the current communication framework was limited and needed improvement as investors required data in a more timely manner. Given the widespread view that the information in the management letter is more valuable than an unqualified audit opinion, it was suggested that these could be put in the annual report. It would be essential, if this was to happen, that auditors then did not tone down their comments to management, as a subsequent research report by ACCA in Singapore, and commissioned by the Singaporean regulator ACRA, showed that Audit Committee chairmen greatly valued auditors' comments on many parts of the business.
The Singapore event also concluded that auditors should not perform internal audit for fear of reviewing their own work. ACCA too believes that independence could be threatened if the audit firm either made management decisions' on the basis of any internal audit work it has performed or placed reliance on its own work.
The Singapore participants also observed that while the US had stricter rules regarding auditors' independence, like any rules they can become gradually subject to a 'box-ticking' mentality. The Singapore round table did suggest that to improve perception of independence, consideration could be given to payment of auditors coming from the Stock Exchange with all listed companies contributing towards an 'auditing fund'. The problem was that the Exchange may not be in a position to assess the complexity of a particular audit and so it was deemed better to leave it to the audit committee who were in a better position to set fees.
Daryl Wee adds: "It was clear from all the events that the audit function is still believed to add considerable value to business by increasing confidence in financial statements. 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."
Some of the key findings were:
1. 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.
2. 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.
3. 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.
4. There was concern amongst 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.
5. 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 SMEs.
Mr Wee 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 deadweight 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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For further information, please contact:
Nick Cosgrove, ACCA Newsroom +44 (0)20 7059 5989
+44 (0)7963 496144
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.