John Griffith-Jones has called for 'kitemark' standard for audit reports, arguing that, with hindsight, accounts can turn out to be 'spectacularly wrong'.
'No amount of words in the auditor’s opinion will change that fact,' the co-chairman of KPMG Europe said.
Griffith-Jones asked the profession to consider re-thinking the role of public company audits and suggested the current 'expectation gap' could be closed with a 'new approach' and new contract.
'I am making the case for the acknowledgement of reality. I believe the ‘kitemark’ that the profession and society should agree to work towards could be summarised in the vernacular as ‘these accounts are about right unless the management have deliberately conspired to falsify them’.
'I am not about to argue for any reduction in the rigour with which an audit is carried out – I am not arguing for the commoditisation of an audit – and I am not proposing to take on liabilities I cannot meet,' Griffith-Jones said.
He argued further that the 'kitemark' would require individual auditors and firms to sign up to an increased level of responsibility.
'Society, for its part, would need to accept the standard of ‘about right’ as value for money and that - like it or not - there is not, as of now, sufficiently reliable audit technology to make it possible to remove the fraud caveat.'
Griffith-Jones said that corporate scandals of recent years 'have taught us that we miss the point in spending a lot of time debating what “about right” means.'
'Because, in almost all the cases of major audit failure “about right” does not come into it. The accounts turn out, with hindsight, to be “spectacularly wrong”. No amount of words in the auditor’s opinion will change that fact,' he said.
He also warned that pressure on the UK profession from competition overseas and challenges from emerging countries such as India would see more outsourcing and off-shoring of audit work.
'Large and significant chunks of audit work may well be transferred to lower cost, but by no means lower quality, professionals overseas. This has tremendous implications for the shape of our profession in the UK,' he said.
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