PracticeAuditCan audit change its spots?

Can audit change its spots?

Should the audit profession change its ways to suit shareholders?

Can audit change its spots?When looking at the potential roles of the audit
committee, board and management in providing corporate reporting information,
and that of the auditors in offering assurance on it, we must not fail to see
the wood for the trees.

Gerald Russell (27 September, page 10) concluded that audit committees should
not provide more information on key issues discussed between the auditors and
the committee. He felt the financial statements should stand on their own.

A thorough debate is needed on this issue. Arguments can be advanced on both
sides. Disclosing key audit issues would undoubtedly change the relationship
between auditors, audit committees and management and lead to some frank
discussions, regardless of whether the disclosures were made by the auditors or
the audit committee.

The vital question is whether such a change would improve the overall quality
of reporting. Would users gain a greater understanding of the main areas of
subjectivity or would it merely add a lot of boilerplate disclosure with too
much focus on process rather than outcome?

Whether shareholders should seek to look behind the committee door, however,
raises more fundamental issues about our willingness to embrace change in
auditing.

The report of the Audit Quality Forum’s auditor reporting working party
highlighted information that some shareholders would find useful. In addition to
a discussion of material audit issues, it included more information on emphases
of matter and references to uncertainty and risk.

It also embraced greater disclosure on key areas of judgement, difficult or
sensitive issues and alternative accounting treatments considered.

Some of that requested information is now being provided in listed companies’
accounts or in the business review, with enhancements to narrative reporting on
the way.
But this does not substantially detract from the central point that if some
major investors are raising concerns about the way auditors report their
findings, and hence the value of audit to them, we need to explore them fully
through active dialogue.

Audit became a statutory requirement because its value to shareholders when
voluntary was widely recognised. But this should not reduce our commitment to
ensuring we remain responsive to the changing needs of shareholders.

Anthony Carey is a partner at Mazars and was a member of
auditor reporting working party

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