Audit: an era of independence
The Treasury committee report on the banking crisis means auditors of large systemically important organisations will have to go through a round of fresh self-examination
Auditors of the major banks are likely to end up having a much closer
relationship with the Financial Services Authority. Auditor independence,
especially in relation to banks, will come under fresh scrutiny and financial
reporting for large institutions is likely to be re-examined.
This comes as no surprise. Accountancy Age was clear from the outset
that individual firms would not be held responsible and that is where the
committee has ended up. It’s concern is the process and whether it delivers
enough assurance on key issues, not professional conduct during historic audits,
despite some heavy criticism.
Indeed, the entire thrust of the report places the onus on a number of
agencies the FSA, the Financial Reporting Council but little on the auditors
themselves.
Auditors will not balk at a closer relationship with regulators. What might
rile them is the issue of independence. The committee believes auditors could
‘temper critical opinions of accounts prepared by executive boards’.
Independence is an issue that just won’t go away.
The Treasury committee believes firms cannot undertake non-audit work for the
same client and wants the FRC to consult on the matter. This will be a fraught
debate. Since the crisis, we have been living in a world where tougher
regulation and oversight have greater currency than liberalisation and
light-touch regulation.
It’s a market for rule makers, not those who seek to remove barriers.
Even if they wanted to, auditors might find it difficult to resist the
independence demands this time around.
This could in turn force them to ask very fundamental questions about their
business models. Auditors themselves might just be entering a new era.