Audit study raises privacy issues

financial reporting council

Auditors are hoping that the transparency reports they will have to produce
at the end of next year will not be too invasive.

The FRC recently published the responses to its
Audit Quality
paper and a number of key issues were raised.

Relationships between auditor and client are usually kept a closely guarded
secret, but some of the FRC’s plans, especially transparency reporting, may
shine a light on areas the firms would prefer to keep private.

The FRC said on the second page of the AQF document: ‘Some audit firms will
be required to prepare transparency reports.

‘Such transparency reports will be a useful opportunity for such firms to
differentiate themselves by setting out the steps they are taking to achieve
audit quality by reference to this Framework.’

The Big Four, Grant Thornton and BDO come under this mandate and some of the
reactions from the auditors show that there is resistance.

Nick Jeffrey of Grant Thornton said information would be provided to help
investors understand GT’s prowess in the audit market, but warned that the
reports should not be too invasive. Audit firms should not be discouraged from
selling themselves, as well as giving investors the minimum information they

‘The transparency reports came out of what investors wished to understand
from their auditors about the major audit firms.’If the transparency report
isn’t just about factors like governance, quality control procedures and
independence, then fine, as long as the additional information assists investor
understanding of the firm.’

In its response, PricewaterhouseCoopers also baulked at the FRC influencing
the delicate auditor-client relationship. ‘We would strongly resist any approach
that dictated how and where we should publish any additional information for
which there is no regulatory requirement that has been subject to proper cost
and benefit analysis.’

GT’s Jeffrey added that the audit inspection unit, which will be publishing
reports after probing auditors’ work, should be even-handed.

‘We would look forward to the audit inspection unit giving credit where it’s
due,’ he said.

‘The audit firms have done a good job in getting on side with the standard
setters and getting prepared for some heavy hitting and stringent measures.

‘In times like these, with all the scaremongering, what’s really important is
the confidence in the market where that is warranted, and supporting confidence
in the audit profession will help confidence in the capital markets.’

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