Telling the future for audit

It is a sobering thought that it is nearly two years since the financial markets collapsed.

Much has happened in the interim and there has been a great deal of talk about the future of assurance. However, while some consensus is emerging around how to enhance the role of bank auditors, there are still few concrete proposals on the table from the profession on how the role of the auditor across all sectors should develop to provide investors with more useful information.

While auditors are seen to have fulfilled their duties, given the scale of the collapse, there is widespread and growing political interest, nationally and globally, in the role that auditors played in providing early warning signals that all was not well in the economy.

The same questions are now being posed around assurance for public companies as a whole and what investors do or do not know about their risks. That was entirely to be expected.

I believe that there is broad agreement on the principle that the reporting model must evolve to provide investors with more information on business models, the risks inherent in those models and the critical management judgements and estimates.

The role of external auditors should broaden to provide investors and others with further value from their independent examination. Investors want directors to give clearer disclosures and auditors to provide bold assurance statements.

Many investors also rightly believe there is valuable information that gets discussed by the auditors with management and audit committees, to which they do not have access.
I believe that dialogue between auditors and audit committees should be more open to investors, resulting in clearer disclosures. The key is to unlock that information flow to help investors without undermining the auditors’ ability to get to the information they need.

At a recent ICAS event in London, I outlined a number of models for increasing transparency in reporting.

Personally, I favour an approach where companies prepare more meaningful audit committee reports providing information on judgements and risks around financial statements, with auditors required to report on the fairness of those statements.

Such reports should be ‘primary statements’ with a specific fairness opinion in the auditor’s report.

There will undoubtedly be other views but auditors now need to come up with concrete proposals on how we can play our part in increasing the flow of information that investors need in an increasingly complex and judgemental world.

The crisis needs a holistic approach from many stakeholders and, as auditors, we must ask ourselves what we can do differently to play our part. We must respond positively, not equivocate.

And as a profession, we should not allow the issue of liability to prevent us developing practical proposals for what good assurance looks like. No one would deny that liability is an issue if auditors are asked to provide greater, forward-looking assurance statements but we cannot allow it to become the stumbling block that inhibits new approaches being proposed.

It is now time to get on with agreeing and implementing longer term actions to build confidence. Auditors can decide to be at the forefront of the discussion, or we can have new requirements imposed on us by outside politicians and regulators committed to preventing another financial collapse.

Steve Maslin is senior partner at Grant Thornton and chairman of its partnership oversight board.