THE AUDIT PROFESSION has been overly defensive to criticisms levelled at it for its role in the financial crisis, according to the chief executive of the FRC.
The audit market is currently facing a series of inquiries by lawmakers in the UK and Europe investigating the structure of the market, the relationship between auditors and financial service regulators, and the way going concern and liquidity issues are assessed.
Speaking at the Auditing Special Interest Group (ASIG) Audit and Assurance conference in central London, Stephen Haddrill told delegates that the audit profession "would have more reason to be anxious" if the current inquiries were questioning the value of audit rather than the way it has been discharged.
Haddrill said the profession's defensive stance is not "necessary or appropriate" and added that when looking for assurance from boards over company numbers auditors should do so with a ‘sceptical eye'.
Addressing the European Commission's consultation into reform of the audit market, Haddrill said the FRC was supportive of increasing competition but not at the expense of audit quality.
"Some of the proposals put this at risk," Haddrill said in reference to the EC's intention to impose mandatory rotation of auditors on companies every six years.
Last month, the FRC announced audit tendering plans that signalled a notable split with the stance taken by the EC. Its latest proposals, which were already far less aggressive than the EC's, will require FTSE 100 and FTSE 250 companies - rather than the entire listed market as previously stated - to put their audit out to tender at least once every ten years.
Haddrill said he felt that "heavy hand" of mandatory six year rotation "runs the risk" of auditors' understanding of the risks and systems of the companies they are auditing becoming "weaker".
On the subject of corporate reporting - the FRC also announced a raft of proposed revisions to the corporate governance code aimed at enhancing the value of corporate reporting and audit - Haddrill said improvements in the reporting of risk at financial institutions still needs to be improved.
"To often the risks that keep boards awake are buried in reports," Haddrill said, adding that they are all too often "obscured by that banal legal requirement called boilerplate."
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