RESEARCH HAS SHOWN many audit committees don't understand their annual reports, fail to carry out an annual evaluation of their auditor, and believe their company's risk programme needs substantial work, according to a KPMG survey
The research shows that just 62% believe their annual reports paints an understandable picture of the business, with UK respondents even less confident as just 56% believe this to be the case.
Only a fifth of UK audit committees are completely satisfied with the quality of information they receive from their company and a quarter said their understanding of underlying management's accounting judgements could be deeper.
Timothy Copnell, chairman of KPMG's UK Audit Committee Institute, said: "Audit effectiveness and understanding the assumptions underlying the material accounting judgements and estimates should be fundamental to both the board and the audit committee, and certainly to the interests of shareholders.
"So why are they in danger of slipping under the net? One would hope issues like this are being identified through the board and audit committee's own effectiveness evaluation processes and appropriately addressed."
Other highlights from the research show that 76% of global respondents do not believe mandatory auditor rotation will improve audit quality, with that figure higher for the UK (80%) and lower for Europe (73%).
The sentiment was much the same for audit retendering, with 61% globally believing this would not improve audit quality – the UK had slightly more faith with 58% and Europe 52%.
However, it was not all lack of confidence in the system. 84% of global respondents were satisfied with their external audit (86% in the UK).
Unfortunately, audit committees in the UK are still failing to see the importance of corporate social responsibility issues, with a third (34%) not discussing sustainability issues at all and 42% doing so only "periodically".
The audit committees believe that risk management programmes need to be more dynamic to move with the changing world and nearly half (45%) said their company's risk programme requires substantial work (39% of UK respondents).
KPMG conducted a survey of about 1,800 audit committees from 21 countries between August and October 2012.
If audit committees - which let's face it are close enough to communicate with the company and its directors - can't understand the reports, then what hope has the common investor?
I suggest this is a major failure of our profession to provide a useful product (on which clients spend a lot of money by the way). Throw out and start again.
Posted by: Duncan, 31 Jan 2013 | 10:51
You may also like
If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.
In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.