PracticeAuditOverview – The Peacemaker

Overview - The Peacemaker

On the frontline: AQF head Gerald Russell will be driving reform of the audit profession.

If the Big Four are pinning their hopes on a deal with government to limit liability on a proportionate basis, then they must be equally hoping that Gerald Russell can broker a deal to keep investors and regulators happy.

Russell is at the heart of moves to encourage auditors to make a few concessions on disclosure, which will in turn make investors happy enough to persuade the government to place a limit on auditors’ liability.

This is the way the land lays. The government is giving every indication that it will offer fresh protection to auditors, if the audit profession can get its act together and agree a few changes that investors like.

The medium for doing this is the Audit Quality Forum and the man heading the project is Russell. If he fails to find sufficient common ground with investors, then proportionate liability may be dead in the water.

It’s a big burden to shoulder. The work of the AQF is not directly linked to any government decision on liability, but ministers will want to see some progress on key issues.

And they’ll want to see that progress emerging when the AQF meets next Monday. Only then will auditors stand any chance of getting a limit in the current draft companies bill.

Russell is under pressure to broker deals on several key areas: allowing shareholders to question auditors, as happens in Australia; shareholders determining audit fees; the publication of auditors’ engagement and resignation letters; and auditors disclosing much more on their client relationships.

None of these issues will be easy to settle, but Russell has a history of interest in corporate governance. He is a partner at Ernst & Young and is about to become chairman of the ICAEW’s audit faculty.

But it is his involvement with the minutiae of independent directors that lends him a pedigree fit to grapple with the current set of auditor issues. A co-chairman of the Independent Director Initiative, a collaboration between E&Y and the IoD, Russell appears predisposed to beefing up governance measures, a fact that the investor representatives at the AQF will no doubt be relieved about.

That said, his years as an E&Y partner will ensure Russell is no pushover.

For Russell, the AQF could be the beginning of a long-running role. There are already several further meetings set up for later this year, but even when the current issues are concluded, the plan is for the forum to continue as a talking shop between accountants, regulators and investors.

If correctly steered by Russell, the AQF could become crucial in cementing a permanently close relationship between investors and auditors.

KEY ISSUES FOR THE AQF
Shareholders should be allowed to question auditors – but what are the cost implications?

How much can shareholders learn from the publication of engagement letters?

Shareholders would clearly like to see auditors’ resignation letters published. A working group has been set up to look at this and is expected to report soon

The concept of shareholders determining audit fees has been thrown out

Shareholders want more information on auditor relationships – the forum believes the operating and financial review is the way to achieve this.

Related Articles

Is predictive analytics the end of the annual audit?

Audit Is predictive analytics the end of the annual audit?

7d Martin Herron, MHA MacIntyre Hudson
Auditors ‘in the dock’ over Carillion as report calls for Big Four break-up

Audit Auditors ‘in the dock’ over Carillion as report calls for Big Four break-up

2w Emma Smith, Managing Editor
PCAOB sanctions former Deloitte Turkey CEOs over altered documents

Audit PCAOB sanctions former Deloitte Turkey CEOs over altered documents

2w Alia Shoaib, Reporter
KPMG South Africa to review past audit work amid fresh scandal

Audit KPMG South Africa to review past audit work amid fresh scandal

1m Alia Shoaib, Reporter
FRC introduces £10m sanctions for Big Four firms

Audit FRC introduces £10m sanctions for Big Four firms

2m Alia Shoaib, Reporter
Ukraine’s PrivatBank files $3bn claim against PwC

Audit Ukraine’s PrivatBank files $3bn claim against PwC

2m Alia Shoaib, Reporter
Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

Audit Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

2m Alia Shoaib, Reporter
Big Four dominate FTSE 250 audit market in Q1 rankings

Audit Big Four dominate FTSE 250 audit market in Q1 rankings

3m Alia Shoaib, Reporter