Will audit reform bridge the perception gap?

Will audit reform bridge the perception gap?

The EU's proposals are drastic - but will intervention merely provide relief to audit's perception problems?

SO IT’S THE END of the beginning for overhaul of the audit market. Some will argue it’s the beginning of the end.

Current proposals from the EU, according to a draft seen by Accountancy Age, include pushing the biggest firms down an audit or non-audit path, mandatory rotation of auditors and joint audits.

Whether this will sate those that say auditors aren’t independent enough – or constrained by legislation – to understand and state the risks facing their clients, we shall have to wait and see.

We can expect, shall we say, ‘intense lobbying’ from the biggest firms to prevent a situation where they have to divest either their audit or advisory businesses.

But the quietest group (with regards to a public voice) – the FDs who work with the firms – would do well to step forward.

The changes are likely to see increased cost on the firms – more tendering for example. And the clients are likely to be on the receiving end.

Most FDs we speak to seem quite satisfied with their auditor, and how firms’ close knowledge of them as a client enables them to provide strong advisory services. Critics of auditors would no doubt suggest this ‘relationship’ is by definition too close and the root of concerns.

The big issue is two-fold: whether making changes to the market will satisfy investors and regulators that the auditors are independent; but more importantly will this independence produce the kind of rigour and checks that might have helped prevent the financial crisis?

Creating a stronger impression of independence could make it even more difficult to place any blame at auditors’ feet when a company collapses. And if the answer is no to the second part – as is argued by some who say there is no hard evidence linking auditors to banks’ travails – is it still worth taking such drastic action?

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