Watchdog places transparency at centre of audit reform
FRC chief Stephen Haddrill tells EC conference that transparency is at the heart of reforming audit in the wake of the financial crisis
TRANSPARENCY HAS BEEN placed at the heart of audit reform by one of the UK’s chief financial watchdogs, in a speech to an EC conference on audit reform.
Stephen Haddrill, chief executive of the Financial Reporting Council, said: “We think that greater transparency of the specifics of the audit will both incentivise renewed auditor focus on their relationship with the investor and provide investors with more of the auditor’s insight about the company that they want.”
Haddrill told the Brussels gathering that more publicity must be given to potential clashes between auditors and their clients.
“We must give more insight into whether the preparation of these statements was contentious and subject to debate within the organisation or with the auditors,” he said.
He said that shareholders have “not exerted their authority” over companies and audits in the past.
Haddrill alluded to claims last year from the Financial Services Authority that auditors had failed to be appropriately “sceptical”.
He said scepticism and a willingness to challenge company management were “under threat from the pressure to keep clients and win new business, under pressure from the fear of liability suits [and] under pressure from shrinking reporting timetables.”
He insisted: “Companies need to stop producing boilerplate text prepared by their lawyers to minimise their abilities. As regulators, we must face up to the risk that we sometimes drive a culture on awarenesss of liability rather than on transparency and openess.”
Later Haddrill repeated opposition to joint audits and mandatory rotation of auditors. He said banks need to be encouraged to use non-Big Four firms, reform was needed for the rules on audit firm ownership and a ban was needed on banks insisting that clients use only Big Four auditors.
Earlier the conference heard from Iain Richards, AVIVA’s regional head of corporate governance, that there was “widespread agreement that the audit failed to achieve its true purpose” in the run up to the crisis.