POB shys away from full transparency

The UK’s audit watchdog has decided not to issue reports on the quality of
individual company audits.

The Professional Oversight Board, which oversees the work of the Audit
Inspection Unit, was forced into proposing publication of its inspections of
firms, after legislative amendments subjected it to comply with Freedom of
Information Act requests.

But five out of the seven major UK auditors baulked at proposals to go a step
further and publish AIU reports on individual company audits. Only KPMG
supported this move, while PKF declined to comment.

The POB could have been persuaded by the firms’ grave concerns over the
response of markets, should the reports reveal sensitive information.

Concerns were also raised that speculative links would be made between
comments of a firm and companies on the review list.

The firms felt that this risk would be particularly evident in cases where a
firm has few clients reviewed or a small number of clients in a particular

The inspection unit’s report hinted at the potential for the threat of legal
rebuttal from the firms, unless it has a fully substantiated case for the
criticisms it makes of an audit.

The London Society of Chartered Accountants, for example, pointed out that
the AIU ‘may be inhibited from making any criticism unless they feel that they
have a watertight case. The net result may well be prolonged expensive
legalistic agreements, rather than incremental improvements in the standards of
It also stated that in light of reports being published, firms will argue their
point and resist the findings rather than accept criticism and take steps to
improve procedures.

The ICAEW even went so far as to criticise the AIU’s consultation for failing
to list or quantify what the benefits of the process would be.

The consultation has also led to a change in behaviour among the audit
community, the AIU claims.

It has ‘already seen evidence of a greater degree of challenge [by auditors]
after the consultation was announced, with some delays in responding to the
points raised during inspection field work’.

But transparency has not been trumped entirely. The POB has removed
restrictions preventing firms discussing individual audit inspections with the
company’s audit committee, despite resistance from auditors.

The firms may now share reports from the AIU with audit committees of their
clients. It is understood that committees already routinely question the
auditors about such reviews.

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