RegulationAccounting StandardsAuditors should sign off on directors’ decision-making process

Auditors should sign off on directors' decision-making process

ICAS outlines key reforms to the audit profession in its new report

DIRECTORS SHOULD outline the key rational and decision-making process for concluding that their business model is viable for the next 12 months, on which auditors should sign off their opinion, according to ICAS.

The institute’s report, ‘The Future of Assurance’, suggests that auditors should provide explicit opinion on directors’ going concern judgments.

Auditors should also provide assurance on the front half of annual reports, which tend to contain more general overviews of the business and the environment it operates in. This assurance would be badged as giving a “balanced and reasonable” opinion. Although not an audit opinion in the traditional sense, it would use the auditors’ knowledge of the business to provide comfort over the narrative reporting of management.

Past ICAS president Doug Nisbet, who sat on the report’s working group, said a framework was required to outline exactly the purpose of audit and reporting. Changes to audit must not increase the expectation gap between the role of audit and what other stakeholders believe is the purpose of audit.

“Auditors are already challenging [the front of the book with clients]. The changes would give auditors some teeth,” said Nisbet.

He believed that the audit profession would also need to work more like business people in their approach to understanding, evaluating and working with clients.

“There is a challenge for audit to rise to from an educational point of view – it’s about being more like business people. Perhaps it’s going back to what we did before.”

The report also outlines more depth to audit committee’s role. The audit committee report should specifically disclose the key areas of discussion between the committee and the external auditors.

Audit committees should disclose their policy for ensuring an effective audit process. The audit committee chair and audit partner should also attend the AGM and answer written questions submitted beforehand about the audit report, process and opinion.

The working group consisted of: ICAS deputy chairs; Mike McKeon, group finance director, Severn Trent; and Guy Jubb, head of corporate governance at Standard Life Investments. Observers from the Financial Services Authority and the Financial Reporting Council were also present at meetings of the group.

 

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