The bodies can all bring change to the profession from different directions.
One way to see that is to use an example such as compulsory rotation of auditors, a radical move for the profession, which has been gaining momentum since the collapse of Enron and the confessions of company auditor Andersen.
Given the complex and disjointed regulation of the profession this move could feasibly come from several quarters.
Legislation could be added by the government to the ongoing modernisation of company law creating a law on mandatory auditor rotation. This is possibly the quickest way it could be done and an updated company law regime is scheduled to take effect as early as next year.
The Department of Trade and Industry could achieve this goal through secondary legislation added to an existing act of parliament. If it had it in mind, the DTI could achieve it in days.
A second way compulsory auditor rotation could be implemented is via the Financial Services Authority, the new City watchdog. The London Stock Exchange, now under the aegis of the FSA, is to undergo a ‘back-to-basics’ review of its listing rules. Part of the review will include proposals for mandatory auditor rotation.
Via this route, however, a rule could take much longer. The FSA review is due to start in March and is unlikely to be completed in under 18 months, an FSA spokeswoman said this week. The timescale for implementation ‘is impossible to speculate on’, she added.
The third route could come in the form of a new auditing or ethical standard issued by either the Auditing Practices Board or the Ethics Standards Board under the watchful eye of the profession’s new independent regulator, the Accountancy Foundation.
Jon Grant, technical director of the APB, highlights a few potential stumbling blocks for all three routes.
‘If it was done by law would it make sense for small companies, too? Is there a public interest for these companies as well? If it is done just for listed companies (by the FSA), is there any point doing it for UK companies only? It could be included in European or international proposals. If the APB were to do it we would have to consider carefully what impact rotation would have on the quality of audits. We would be concerned that it doesn’t weaken the quality,’ he said.
He also points out that auditor rotation would increase costs both for the audit firm and the company being audited due to the expected sharp learning curves of auditors on new jobs who would need to learn a company’s systems and controls and then audit them.
Michelle Perry Accountancy Age’s audit and accountancy correspondent