London, 2 April 2019 – ICSA: The Governance Institute has today reiterated concerns that the UK audit market will not improve unless issues of education, training and trust are first addressed. It believes that the report published today by the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee does not reflect the realities of commissioning audit work and is another missed opportunity to improve the situation.
Peter Swabey, Policy and Research Director at ICSA: The Governance Institute said: “There is a clear need for reform of the audit market and the BEIS Committee inquiry has identified a number of important issues. While many of the report’s 54 conclusions and 29 recommendations are sensible and proportionate, such as the suggestions around capital maintenance, the implementation of the Kingman review recommendations and for Sir Donald Brydon’s review of the quality and effectiveness of audit, its conclusions do not always reflect the evidence it has received or, more importantly, the realities of commissioning audit work.
“The Committee is right that “the expectation gap must not be allowed to mask the serious failure of audit to deliver on its own current terms”, but we are not convinced that “the delivery gap is far wider than the expectation gap”. Both are significant issues and neither should be overlooked.
“Our members have been consistent in telling us that the audit committees with which they are familiar take their work, especially insofar as it relates to challenging management and ensuring the independence of the external auditor, exceptionally seriously and we profoundly disagree with the Committee’s conclusions on ‘ensuring independence, challenge and professional scepticism’. The suggestion of independent appointment of auditors, in particular, usurps the rights of shareholders to appoint their own professional advisers.
“Other recommendations, such as the full, legal separation of audit and non-audit work and mandatory joint audits have some superficial attractions but are knee-jerk solutions which risk allowing legitimate concerns about the concentration of the audit market to become conflated with the central issue of audit quality. We do not believe that either proposal addresses this fundamental problem.”
ICSA still believes that three areas need to be given more attention in order to improve the audit market:
- Education – clarification of the role of audit in order to reduce the perception gap.
- Training – much more training is required to foster a greater spirit of professional scepticism among auditors and accounting standards need to be revisited to give greater clarity on where judgement has been applied by both the preparer and auditor. Particular value being regarded as crystallised in the accounts should be a question of fact rather than of opinion – either it is yours or it isn’t.
- Trust – the chief weakness of the audit market is the lack of confidence on the part of companies, investors and some regulators in the ability of auditors outside the Big Four to provide an audit of an adequate standard for large, particularly multi-national, companies. The accuracy of this perception should be tested by an independent body.
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For further information, please contact Maria Brookes, Media Relations Manager:
mbrookes@icsa.org.uk
+44 (0)20 7612 7072
+44 (0)7890 649 143
Notes to Editors:
- ICSA: The Governance Institute is the professional body for governance. We have members in all sectors and are required by our Royal Charter to lead ‘effective governance and efficient administration of commerce, industry and public affairs’. With over 125 years’ experience, we work with regulators and policy makers to champion high standards of governance and provide qualifications, training and guidance. Website: www.icsa.org.uk