While watching the latest bunch of unmanageable brats being transformed into little angels, it struck me that perhaps that perennial debate on nature vs. nurture had finally been resolved. On this, heavily edited evidence, nurture was winning hands down.
In accountancy, there is a similar long-running debate. Most accountants will have been drawn into a ‘rules vs. principles’ discussion at some point, however unwittingly. But this has yet to come to a satisfactory conclusion, even though the need to do so is much more pressing.
The introduction of international standards on auditing has fanned these flames once again. This drive for harmonisation is exposing the fundamental differences in the role assurance plays in the US, compared to here.
To some, especially the more vocal of the investor representatives, these ISAs are too rules-based and may damage the quality of UK audits.
In Blighty, it is commonly accepted that the principles-based approach is far superior to the boilerplate format used in the US. The flexibility it offers gives auditors the room to do their jobs effectively, according to regulators.
So why is the debate continuing? Surely our US counterparts would have taken note by now if the answer was so clear-cut, while the standards’ developers would have had this in mind when creating the new rules. And if these ISAs are so rules-based, why is it investors kicking up a fuss while auditors remain quiet on the subject?
The answer could be liability exposure. The ISAs, argue investors, provide auditors with additional protection against damages claims, even if they could detract from the quality of the audit. It would be unfortunate, given the hard work put in to get proportionate liability by contract, if auditors were to sacrifice their principles for greater protection.
Perhaps Supernanny will be needed to keep accountant-investor relations on a civil footing.
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