On 10 April 2019, the government launched an Independent Review into the Quality and Effectiveness of Audit. This comes at a time when the Business Select Committee has called for the Big 4 accountancy firms to be split up and also reports in the news that following the failures of Carillion, Patisserie Valerie, Interserve and others, shareholders are going to give very close scrutiny to the performance of auditors and not merely rubber-stamp their re-appointment at annual general meeting.
The consultation quotes Jim Peterson in Countdown in saying that “the standard audit opinion is an outmoded product that nobody values, at a cost nobody wants to pay”. However, audit is a critical part of the framework looked at by an investor when deciding whether to make or retain an investment, and also to give the market confidence that financial standards applied to business are robust and there are checks and balances in place to make sure a company’s financial accounts are subject to the scrutiny of a highly qualified and experienced professional.
The objectives of the review are to examine the purpose, scope and quality of statutory audit in the UK, taking into account the needs and expectations of those who rely on such reports, the changes to regulation and company law that may assist in improving the process and whether other forms of business assurance can be made available to enable better assessment of the prospects and sustainability of companies. The Call for Views can be found below and responses are due by 7 June 2019.
It would be a very positive result if improved audit procedures and reporting introduced as a result of the consultation could in the future avoid the failure of other significant businesses in the UK – but the reality is that there are many issues involved in the failure of a business and even an improved and robust audit procedure will not be able to remedy all of them.