‘Audit reform welcome, but core concerns need addressing alongside legislation,’ says ICSA: The Chartered Governance Institute

London, 18 March 2021 – ICSA: The Chartered Governance Institute has today welcomed the Government’s proposals to reform the UK audit market and strengthen the country’s corporate governance regime, but stressed that the proposed legislation around audit has to be evaluated on how well it addresses core concerns on the role of audit, the degree of professional scepticism exercised by auditors and the lack of trust in the ability of auditors outside the Big Four. 

Peter Swabey, Policy and Research Director at the Institute says: 

“Much has changed since the Government first started its review of the UK audit market, not least the additional weight of a global pandemic and the fact that we have now left the European Union. Both have brought about challenges, but both also provide ideal opportunities to enhance trust and reputation and to foster growth as we emerge from the pandemic. This is why it is so essential that we do not miss this golden opportunity to reform the audit market in the best and most effective way. Having a robust audit market is essential to building trust and maintaining the UK’s reputation as a good place to do business. 

“Throughout the various enquiries into the effectiveness of the UK audit market, we have been consistent in our position that audit reform will not work unless three fundamental areas are tackled first:

  • clarification on the role of audit in order to reduce the huge gap that still exists between the public and political expectation of the role of audit and that of the audit profession
  • more training to foster a greater spirit of professional scepticism among auditors
  • addressing a lack of trust in the ability of auditors outside the Big Four

“The Government’s proposals for shared audit will need to be carefully balanced if they are to improve quality rather than duplicate effort but if they can achieve the aim of broadening the market without reducing quality, this will be a major step forward. 

“The creation of a new regulator, the Audit, Reporting and Governance Authority (ARGA), with increased powers is also welcome. Not only does the audit process not do what many in our society believe it should, it fails to do properly the bare minimum of what it is actually supposed to do. Politicians and other stakeholders question why the quality of accounting and auditing is not of the standard they expect. This delivery gap, rightly identified by the BEIS Committee in its ‘The Future of Audit’ report, together with the expectation gap are significant and equally important issues and neither should be overlooked. The sector cannot be improved without considering to what extent audit standards, regulation and legislation meet legitimate societal expectations and to what extent auditor performance delivers high-quality audits against existing requirements. 

“As far as new reporting obligations are concerned, the inclusion of more non-financial information is to be welcomed. The Institute holds annual awards for corporate reporting, which recognise those companies that use their annual reports to tell the whole story of their company. Transparency encourages investment as it helps to build trust, something which is crucial for all stakeholders.”    

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For further information, please contact Peter Swabey, Policy and Research Director: 

pswabey@icsa.org.uk  

+44 (0)20 7612 7014

+44 (0)7850 584552

 

 Notes to Editors: 

  1. The Chartered Governance Institute is the qualifying and membership body for governance with over 125 years’ experience of educating and supporting governance professionals. With a Royal Charter purpose of leading ‘effective and efficient governance and administration of commerce, industry and public affairs’, we provide professional development, guidance and thought leadership, and work with regulators and policy makers to champion high standards.

    The Institute has divisions in Australia, Canada, Hong Kong/China, Malaysia, New Zealand, Singapore, Southern Africa, the United Kingdom and Zimbabwe. The division headquartered in London (known as ICSA: The Chartered Governance Institute) represents and supports members in the UK, Republic of Ireland, Crown Dependencies and associated territories, which include the Caribbean, sub-Saharan Africa, the Middle East, Mauritius and Sri Lanka. Website: www.icsa.org.uk

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