IFAC under fire over audit standards
Investment community claims international standards threaten to undermine audit practice in the UK
Later this month, the government is expected to announce its crucial decision
on whether auditors will be allowed to negotiate proportionate liability with
clients.
Hopes of success had been high, but the chances of it happening now look
somewhat remote after a change of heart from investors, who have withdrawn their
support en mass.
Concerns have been growing within the investment community over recent and
forthcoming changes in the regulatory environment that, they believe, will
reduce auditors’ exposure to risk and at the same time reduce audit quality. At
such a time, they feel it would be unwise to further diminish an auditor’s risk
profile without some concrete and substantial improvements in audit quality.
The main target of their ire is global accountancy body the International
Federation of Accountants, which is responsible for the creation of
international standards on auditing. It is these standards, investors claim,
that threaten to undermine audit practice in the UK.
Ian Richards at Morley argues that these ISAs would ‘harmonise audit
standards under a US derived framework that suits the approach of the US side’,
reduce the scope of UK audits and the rigor and tests applied in these audits.
He also claims that should such standards, already in force in the UK through
the Auditing Practices Board, become enshrined in European law, it would mean
‘the end of true and fair view audit as we know them’.
Current IFAC president and PricewaterhouseCoopers partner Graham Ward says
the criticism was ‘unjustified’ and that the body ‘is not beholden to any
individual nation’.
He adds that it ‘issues high-quality, principles-based standards on auditing
and quality control that require the exercise of responsible judgement by
auditors. It is determined to support first-class auditing and an investment
climate of trust’.
Investors are unconvinced and continue to pressurise government to hold back
on proportionate liability. Whether they have been successful should be revealed
soon.
But whichever way the government decides to go, it is unlikely that the
arguments over audit standards, and their impact on quality will go away any
time in the near future.