Telling the future for audit

It is a sobering thought that it is nearly two years since the financial
markets collapsed.

Much has happened in the interim and there has been a great deal of talk
about the future of assurance. However, while some consensus is emerging around
how to enhance the role of bank auditors, there are still few concrete proposals
on the table from the profession on how the role of the auditor across all
sectors should develop to provide investors with more useful information.

While auditors are seen to have fulfilled their duties, given the scale of
the collapse, there is widespread and growing political interest, nationally and
globally, in the role that auditors played in providing early warning signals
that all was not well in the economy.

The same questions are now being posed around assurance for public companies
as a whole and what investors do or do not know about their risks. That was
entirely to be expected.

I believe that there is broad agreement on the principle that the reporting
model must evolve to provide investors with more information on business models,
the risks inherent in those models and the critical management judgements and

The role of external auditors should broaden to provide investors and others
with further value from their independent examination. Investors want directors
to give clearer disclosures and auditors to provide bold assurance statements.

Many investors also rightly believe there is valuable information that gets
discussed by the auditors with management and audit committees, to which they do
not have access.
I believe that dialogue between auditors and audit committees should be more
open to investors, resulting in clearer disclosures. The key is to unlock that
information flow to help investors without undermining the auditors’ ability to
get to the information they need.

At a recent ICAS event in London, I outlined a number of models for
increasing transparency in reporting.

Personally, I favour an approach where companies prepare more meaningful
audit committee reports providing information on judgements and risks around
financial statements, with auditors required to report on the fairness of those

Such reports should be ‘primary statements’ with a specific fairness opinion
in the auditor’s report.

There will undoubtedly be other views but auditors now need to come up with
concrete proposals on how we can play our part in increasing the flow of
information that investors need in an increasingly complex and judgemental

The crisis needs a holistic approach from many stakeholders and, as auditors,
we must ask ourselves what we can do differently to play our part. We must
respond positively, not equivocate.

And as a profession, we should not allow the issue of liability to prevent us
developing practical proposals for what good assurance looks like. No one would
deny that liability is an issue if auditors are asked to provide greater,
forward-looking assurance statements but we cannot allow it to become the
stumbling block that inhibits new approaches being proposed.

It is now time to get on with agreeing and implementing longer term actions
to build confidence. Auditors can decide to be at the forefront of the
discussion, or we can have new requirements imposed on us by outside politicians
and regulators committed to preventing another financial collapse.

Steve Maslin is senior partner at Grant Thornton and chairman of its
partnership oversight board.

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