Gerry Acher former London senior partner with KPMG
It would be wrong to take the approach that Enron could not happen here and so do nothing or assume auditors have become discredited and wholesale change is now required.
The new form of regulation in place, with the Foundation and other structures, should be allowed to bed-down and to demonstrate there is effective regulation.
Equally we have a set of accounting standards that considers the true substance of transactions as opposed to the legal form.
For capital markets to work efficiently, there must be faith in our auditors. While audit committees and auditors believe independence is established and effective, if the perception of independence is found wanting the confidence which is so necessary for the effective operation of the capital markets will not be there.
Perception and transparency go hand-in-hand.
The rotation of auditors every seven years would not guarantee independence and equally an audit firm in post for a hundred years would not necessarily lack independence. What would give me comfort as a shareholder would be to know that the audit committee had specifically considered the independence and the objectivity of the auditors and after due process (including a review of non-audit work) were satisfied. A statement to this effect should be published in the annual report.
But let us not ignore the role of management in its stewardship of the company. Should not the remuneration committee equally sign-off on their satisfaction of the objectivity of management? Many would argue that some of the incentive plans in existence at present where management are remunerated significantly on share price performance conflict with good sustainable and durable policies for the business.
A report should be presented in the accounts that remuneration committee believes that the incentive and bonus plans do not place the executive directors in conflict with delivering long-term sustainable performance.
So this is the guts of independence and objectivity whether by management or auditors. Many of the other ten points are mere sideshows to these central issues. Of course audit firms should publish their accounts in full. Of course full information should be given on directors remuneration – indeed it generally is at present.
But let me end on social reporting. Additional reporting whether social and ethical, triple bottom line or sustainable development should be mandatory.
Effective corporate and social responsibility is vital for the longer term performance of a company.
We need continuous improvementBy Peter Wyman, deputy president of the ICAEW
The UK accountancy profession has demonstrated that not only is it prepared to admit its mistakes but is willing to learn from them.
Following a number of high-profile corporate collapses during the 1991/2 recession, the profession set up monitoring of firms; overhauled accounting and auditing standards; largely established corporate governance and imposed on us an independent oversight mechanism for our standard-setting, regulatory and disciplinary processes. The profession in the UK has acted and put our house in order.
Despite all the good work which has been done, things will evolve and be continually reviewed and refined. There may be lessons to be learnt, and I suggest the changes will need to be incremental rather than fundamental.
Furthermore, change must be justified by evidence, not by whim or short-term expediency.
Many of the solutions in the Accountancy Age manifesto are attractive on the surface although do not stand rigorous examination. Far from solving a problem they may make matters worse.
Compulsory rotation of audit firms increases the risk of audit failure.
This is due to a lack of in-depth understanding and familiarity with complex businesses in the first year or so of an audit, and this heightens audit risk as well as increasing cost and reducing service for the capital markets and the companies being audited.
Equally, a prohibition on auditors providing the present restricted range of consulting services to audit clients attempts to solve a problem, which does not exist. Independent investigation has not shown the provision of consulting services to an audit client as being a contributory factor in any corporate or audit failure and, over time, such a ban will reduce the quality of the audit itself.
Every high-profile corporate failure should stimulate a serious evaluation of the control and reporting systems in place. The accounting profession has a longstanding record of willingly taking part in this process.
But government and regulators have a responsibility to act wisely and proportionately. There is no systemic failure of financial reporting or auditing in this country and therefore no restructuring on a large scale is necessary or appropriate. Other countries may not have developed as far or quickly as we have, and they will need to take more radical steps. In the UK we need careful analysis and debate, leading to continuous improvement, not wholesale change.
Two new audit partners have been appointed at the firm BDO in its audit practice following continued growth and investment
Investment in people, tech and businesses impacts on EY's profit per partner figure
If businesses do not take cyber security seriously in their business planning regulators may do it for them, the ICAEW has warned
Dr Richard Willis provides a several thousand-year history lesson of the profession, from origin to modern-day