PracticeAuditManifesto: Independent regulation in the UK

Manifesto: Independent regulation in the UK

The Accountancy Foundation was set up to secure public confidence in the accountancy profession in the light of some high profile corporate failures during the 1980s.

And yet the public is now faced with the Enron collapse, the failure of Equitable Life, Independent Insurance, and a High Court case involving former Wickes employees.

What can we do to reassure the public that accountants are professionals who are aware of their responsibilities to the community as well as their employers?Possibly the key issue facing the profession is that of auditor independence.

Some would argue that since auditors are appointed by those whom they audit and on whom they depend for their income, they cannot be entirely objective. Is the risk of losing the assignment of greater immediate concern than the long-term reputation of the firm? Would compulsory auditor rotation reduce the likelihood of this issue arising?

Others would argue that it is not so much the risk of losing the assignment but the potential of lucrative non-audit work which drives the auditor. Is this work obtained through competitively priced but under-resourced audit services? Do other services impair the objectivity of the audit or provide added value for the client?

Either way, the Foundation believes it would be unhelpful to react impulsively or prematurely despite recent events.

Ironically it was the high profile failures of the 80s which encouraged the UK to tighten up procedures. Is the USA only now facing similar pressures?

However, the independent regulators of the profession in the UK and the Republic of Ireland cannot afford to be complacent. Doing nothing is not an option. It is important for the Accountancy Foundation, in conjunction with the other independent regulators, to produce a realistic work programme and timetable for addressing auditor independence.

The ethical guidance produced by the International Federation of Accountants and the European Commission, combined with a greater understanding of the behavioural relationships and decision-making processes within accountancy firms, can assist our understanding of this issue.

It is interesting to note that some of the recent recommendations of the Securities and Exchange Commission relate to the independent regulation of discipline and quality control, where peer review is to be replaced by regular external monitoring. Many of these proposals are already in evidence in the UK and these very topics are being reviewed by the Foundation?s review board this year.

We have a genuine opportunity this year to provide an assurance to the general public that the activities of the profession and its self-regulation by the accountancy bodies are protecting the public interest.

Colin Reeves is the head of the Review Board at the Accountancy Foundation

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