Audit disclosure plan sparks fear of paperwork overload

All company officials who speak to auditors may be forced to notify lawyers
of the disclosures they have made, under new proposals which are likely to place
a heavy burden on companies worldwide.

The International Federation of
Accountants has made the suggestion in drawing up ISA580, which aims to lay
down the basic premises of financial statements and those responsible for them.
Currently, only company directors need to get the legal sign-offs.

Auditors speak to hundreds of people when conducting audits, meaning the
extension could lead to huge piles of extra paperwork.

A high-profile gathering at the regulator’s offices is set to discuss the
contentious standard today.

The move could mean all those who speak to auditors would give ‘written
representations’ rather than providing information informally.

Deloitte partner Martyn Jones said: ‘There is a danger that if such
individuals were now made to also give written representations, we could create
an environment of a paper chase. But on the other side of it, what you want is
the right type of processes in place to make sure proper disclosures are made.

‘It is all very emotive, because it opens up an issue as to how much
ownership of information and system control directors want to sign up to,’ said
Jones.

IFAC standards provide general guidance to standards setters, but are
invariably adopted in the UK.

Morley Fund Management’s head of European governance Iain Richards said the
standard was an area of concern. ‘This is bureaucracy and process. What counts
at the end of the day is how rigorous the auditors are. What we want to see is
the old format in which auditors should be expected to obtain all information
and explanations to the best of their knowledge and expertise.’

IFAC is looking to receive consultations by the end of April.

Jon Grant, executive director of the
Auditing Practices
Board, said that US auditors tended to collect more comprehensive
representations than their foreign counterparts.

‘In trying to achieve more international consistency the exposure draft
distinguishes between general representations, which relate to management’s
general responsibilities for the preparation of the financial statements and
specific representations. One of the issues for the UK is how the general
representations set out in the draft ISA580 relate to the legal responsibilities
of directors,’ he said.