Weblink proposals just the start of audit overhaul

Proposals to replace boiler-plate wording in the auditor’s report with a
weblink will probably be welcomed by the users of financial statements and
accounts.

After all, it has long been thought that lengthy descriptions of the
responsibilities of auditors and directors, as well as explanations of what an
audit entails ­ is really of little value to shareholders.

But that is not the end of the proposed overhaul. Commentators have suggested
to the Auditing Practices
Board ­ who came up with the weblink idea ­ that auditors should instead
provide more meaningful information as part of their report.

That is a whole different kettle of fish. APB technical director Jon Grant
said that more work needs to be undertaken to establish whether there is
consensus as to what sort of additional information would be of assistance to
investors, and then to explore the feasibility of providing it.

This could possibly include auditors highlighting aspects of the financial
statements that are of particular importance to investors.

There is also an interest in auditors reporting important risks and
uncertainties that they are aware of that may, or may not, be disclosed in the
annual report.

And there is also growing momentum for greater detail about the main issues
that the auditors discussed with the audit committee during the finalisation of
the audit as well as information to explain the main judgements made by the
auditors during the audit.

In the sunshine age of transparency, with even auditors encouraging clients
to be more frank in their reporting, it is in some ways unexpected that they
find themselves averse to the suggestions.
A Big Four source this week hotly slammed the suggestion that auditors should
give their own opinion on these issues, first by arguing that the boiler plate
wording is ‘not useless’ and that it helped people understand what the audit
was for.

And in the second instance, he declared: ‘It’s not for us to communicate
these things to the shareholders… it’s the companies that have this
responsibility.’

It may not initially seem convincing but there are great concerns with
auditors being asked to repeat their opinion of risks since it is clear that
anything an auditor chooses to repeat will be interpreted as a red flag.
It will undoubtedly make companies nervous ­ and this will lead to debate and
conflict about whether and indeed what should be viewed as red flags.

Even communication with the audit committee ­ frank discussions based on
information often outside of the public domain ­ could easily be cause for
market misinterpretation.

But, with widespread calls for auditors to say more, in an age where they
seem to be saying constantly fewer and fewer useful things, some change must be
inevitable.