View from the House - Jim Cousins MP
The time has come to delegate auditing standard setting to a body independent of the accountancy trade associations. Currently, through the Auditing Practices Board, auditing standards continue to be shaped by the narrow economic interests of the auditing industry.
Consider the example of ‘subsequent’ or ‘post-balance sheet events’, a topic covered by SAS 150. The SAS divides up the post-balance sheet events into three periods: a) between the balance sheet date and the audit report date; b) between the audit report date and the issue of the financial statements (though the date should be the same); and c) between the issue of the financial statements (and the audit report) and the AGM. The SAS asks auditors to ‘actively’ look for audit evidence for period a) only.
For period b) the SAS is good at saying what the directors obligations are, but does not ask auditors to actively seek or collect sufficient evidence.
Instead, the management is expected to ‘inform the auditors’ and the SAS adds, ‘auditors do not have an obligation to perform procedures or make enquiries regarding the financial statements after the date of the report’.
The onus is on others to tell the auditor, not for the auditors to make definitive inquiries.
The APB’s framing of the standard encourages auditors to be ‘passive’ for periods b) and c) in the sense that it expects things to land in their lap. It is designed to minimise audit effort. Auditors are not required to take ‘active’ steps to collect evidence. Is it any surprise that audit failures are institutionalised?
Under the Companies Act 1985, an auditor is appointed from one agm to the next. Nowhere does it state that an auditor’s responsibilities, duties, powers and rights are greater for the period until the audit report date or any the less for the period after that date. The SAS has no legal, ethical or moral basis.
By complying with it, auditors may well be leaving themselves open to a charge of negligence. The present audit regulators should be concerned, but they do not owe a ‘duty of care’ to anyone. Only an independent regulator will have the power and will to make sure the auditing elites do not use the standard-setting processes for their selfish ends.
Jim Cousins is the Labour MP for Newcastle Central.