Who needs audit?

During a 50-year career I have observed audit from various perspectives –
auditing with a Big Four firm; moving to business as a plc group internal
auditor; then financial controller and commercial director; and latterly as a
general practitioner serving small businesses.

A debate on audit last took place more than ten years ago when exemption for
small companies was first mooted. Step changes since then have enabled several
hundred thousand companies to avoid audit where no significant public interest

Given recent corporate failures a debate seems appropriate between the
profession, business leaders, government and financial academia to review how
statutory audit matches business and investors’ needs.

Historically the profession has developed financial and ethical standards for
business, with audit seen as an independent statement on the morality of those
entrusted with managing others money.

The profession is also very serious internally about audit, as it establishes
high ethical standards in its members and is rigorously policed by
self-regulation. It is also a licence to earn a great deal in fees, but is our
profession becoming so reliant on the monetary value of audits (plus the
valuable accounting services this may lead to) that it is becoming blind to
audit’s effectiveness? Is our stalwart defence of audit becoming more an act of
self-preservation than delivery of an essential service?

It is probably reasonable to state that the financial affairs of the vast
majority of larger businesses are appropriately managed, with adequate budgetary
control, internal control and internal audit in place. In such circumstances
does statutory audit remain a benefit or a burden – what does business think?

Should a cost benefit analysis of statutory audit for business be prepared?
Does audit meet the needs and communication speed required?

Bad apples exist in all societies, and recent corporate failures suggest that
statutory audit has not deterred errant managers from perpetrating isolated
massive fraud on thousands of investors.

Yet it is to those same investors to whom, after many months, auditors
report. Is there a gap between investors’ expectations or needs and auditors’
‘deliverables’? Should this be reviewed – and fixed?

With failings in financial markets being addressed extensively by the
Treasury, along with the Bank of England and the FSA – isn’t it also time our
profession considered the effectiveness of its contribution from statutory audit
to the wellbeing of our economy?

Peter Mitchell is chairman of the Society of
Professional Accountants and an ICAEW council member

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