Senior auditors are organising a rearguard offensive following attacks on
their relevancy and competency in the wake of the financial crisis.
Figures within the top six UK accounting firms want to audit the “front of
the book”, where companies outline their business model and risks.
However, they claim that any expansion would make the profession vulnerable
to litigation and have to be matched with reform of auditor liability measures.
Senior figures within the ICAEW are already hoping to look into the issue and
“start a discussion” with investors, companies, and regulators about the future
role of audit.
Since the crisis and collapse of US bank Lehman Brothers questions have been
raised about the relevancy of audit.
Last month, a damaging report by the US bankruptcy court into the collapse of
Lehman Brothers found the bank used “accounting gimmicks” to manipulate its
balance sheet position.
A Treasury select committee report last month said this demonstrated how
audit reports “can seemingly omit crucial information”.
“The current audit process results in tunnel vision, where the big picture
that shareholders want to see is lost in a sea of detail and regulatory
disclosures…We call for progress on our earlier recommendations, to ensure that
audit reports are an effective tool for investors,” the committee said in its
This followed earlier comments during October, 2009 when investor groups
including the Association of British Insurers and the Investment Management
Association said audit reports only reveal the “minimum” and are “overly
Steve Maslin, chair of the partnership oversight board at Grant Thornton,
said the current reporting model “doesn’t go far enough in the modern world to
give users all the information that they are entitled to”.
He said: “We can’t just say ‘there has been a crisis – it’s nothing to do
“There is a pent-up desire from users to get even more relevant and useful
information in accounts and if there are going to be more reliable disclosures
there needs to be some assurance.”
He believes there is little recognition of the good work done behind closed
Pauline Wallace, head of public policy and regulatory affairs at
PricewaterhouseCoopers, said auditor liability had to be discussed alongside
any debate about expanded assurance work.
“If you are going to go further and provide assurance around non-financial
information then there is a need to make sure auditors are not subject to far
greater litigation,” she said.
She added that auditors’ positive impact in the financial system often goes
unacknowledged. “We suffer from the classic problem – people don’t
really understand what we are doing and it is not terribly sexy. It’s only when
there is a problem that it comes to light,” she said.
“We should have a much more open debate about what it is people want… the
question I would ask investors is ‘what is it exactly you are searching for’.”
A number of academics have already begun studies into the subject and there
are early signs the ICAEW may sponsor research.
Any substantial changes, however, would need to be undertaken in conjunction
with the Financial Reporting Council and the government, to be effective.
IN OUR VIEW
Auditors will claim that their proudest moments will never be reported on.
The meatiest rows and arguments take place behind closed doors. However, in the
post-crisis world auditors’ work needs to be seen to be done,
and perhaps, with this in mind, there is an argument to expand their assaurance
measures to the front of the book.
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