AIU makes U-turn on firm reviews

Large scale objections from firms have forced the Audit Inspection Unit to
backtrack on plans to publish a list of reviewed company audits.

However, the AIU also announced that it will release reports on the audit
firms themselves in the Autumn of 2008.

The decision to not publish the list of reviewed audits was influenced by
objections from five firms including PricewaterhouseCoopers. Concerns were
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
sector.

PricewaterhouseCoopers said: ‘The inevitable effect of publishing this list
will be to create a feeding frenzy for companies and the regulator to disclose
the contents of the AIU private reports with the result that those reports will
enter the public domain.’

Only KPMG supported the publication of a list, saying in its response: ‘The
publication of the annual list of audits reviewed by the AIU we regard as a
logical extension of transparency and confidence.’

PKF did not comment on the issue.

However restrictions will be lifted on firms discussing the results of the
AIU reviews with their clients, despite their objections.

The AIU said firms believed that sharing findings with audit clients could
run the risk of information not remaining confidential, since non-executive
directors usually sit on more than one board, This could lead to a possible
spread of knowledge beyond the original audited company.

Firms also argued that there would be interest in the AIU report and demand
for copies from other parties such as investors, rating agencies, parties
conducting due diligence and that such interest would be fuelled if the AIU were
to publish a list of audit assignments reviewed.

‘From the tenor of the comments received it would appear that, whilst aud
itors are accepting of the need for more transparent reporting in principle,
they are more sensitive about reporting on specific audits,’ the AIU report
stated.

Further reading:

Naming and shaming on the audit agenda

Regulators poised to publish audit firms’ shortcomings