The scope of the comments went far beyond PwC’s work at Northern Rock, and
cut right to the heart of the UK audit system itself.
The MPs called for professional bodies and regulators to take a completely
fresh look at the assurance auditors should be able to offer for company risk
management and highlighted the ‘conflict of interest between the statutory role
of the auditor, and the other work it may undertake’.
But is tougher regulation really the way to prevent another Northern Rock? Is
the entire audit system really in need of such a stern re-examination?
Jon Grant, executive director of the Financial Reporting Council’s Auditing
Practices Board, is not so sure. ‘Guidelines on auditing internal controls and
risk management are outlined in the Combined Code, which applies to all listed
companies. It is a principles-based approach, it was consulted on widely, it has
since been reviewed and what is clear is that there is no appetite for US-style
regulation,’ Grant says.
He is equally adamant that the framework for avoiding auditor conflicts,
particularly in the financial services sector, highlighted by the Treasury
Committee, is in place and robust.
The Financial Services
Authority has the power, where it sees fit, to hire an independent auditor
to report on a financial institution. If there is a suggestion of an auditor
conflict, the FSA has the power to do something about it.
‘The mechanisms are in place. After Enron we consulted on this question of
auditor conflicts of interest and there was no appetite for a blanket ban on
non-audit services. We have a laser gun which is much better than a nuclear
bomb,’ says Grant.
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