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Audit not broken, but it needs to evolve

Date

08 Dec 2010

Sections

Euro & Finance
Trade & Society

ACCA responds to European Commission’s Green Paper on Audit consultation

          o There should be no presumption that audit generally speaking has failed.
          o Audit still adds value
          o Opportunities for enhancing the value of audit should be embraced.

Independent audit remains a key contributor to business confidence and plays an active part in minimising companies' cost of capital, says ACCA (the Association of Chartered Certified Accountants) today in its official response to the European Commission's Green Paper Audit Policy: Lessons from the Crisis.

John Davies, head of business law at ACCA, says: “While it is right that the role of audit be re-assessed in the light of the financial crisis, and while there is a case for reforming certain aspects of audit, the basic model is not broken and any recommendations which result from the review should focus on ways of enhancing the benefits that audit brings.”.

In its response, ACCA says that there should be no presumption taken from the paper that audit generally speaking has failed.

Mr Davies adds: “The value of audit, for businesses, audit committees, investors and others lies in the credibility that the process adds to a set of financial statements. Recent research from ACCA suggests that stakeholders of various kinds continue to have a high regard for the audit process and the assurance it provides to each of them. The current model remains, in our view, fit for purpose.

“However, this is not to say that the profession should resist change. On the contrary, opportunities for enhancing the value of audit should be embraced.”

Many stakeholders say that the audit should evolve to address new matters in order to provide additional benefits to them. ACCA has actively engaged with its membership around the world to gain their views on the direction in which audit should go. Strong support was expressed, from auditors, businesses and audit committee members alike for the development of the auditor's role to cover areas such as a company's internal controls, risk management arrangements and the financial assumptions underlying a company's business model.

John Davies adds: “ACCA agrees that the profession should be open to the idea of expanding the scope of audit so as to respond to emerging market demands. We agree with many of the individual points made in the Commission’s paper. We agree that measures should be taken to address the issue of market concentration although those measures must remain consistent with companies' freedom to make their own choice of auditor.”

Contrary to this, ACCA does not agree that the law should intervene to forbid auditors to provide additional services to their audit clients - as long as auditors, and the audit committees that they deal with, are satisfied that non- audit services do not compromise independence, ACCA considers that the existing ethical rules are adequate to regulate this matter.

John Davies concludes: “What we want to emerge from this review, above all else, is a blue print for ensuring that the continuing problem of the expectations gap is resolved. We believe that there is a case for encouraging auditors to communicate more, and more effectively, about what they do. If shareholders, audit committees and third parties have a better understanding of the scope of the auditor's role that could help to avoid many misunderstandings.

“What also needs to be borne in mind by the Commission is that audit exists within a wider framework of corporate reporting. That framework has itself been widely criticised for being opaque and overly complex. This wider context needs to be understood because auditors cannot achieve improvements for stakeholders in isolation from it.”

In this context ACCA held a roundtable on Rethinking the value of audit; towards better governance and better adaptation to the markets and the needs of business in November and  produced new report  gathering expert opinions from a series of roundtables held during 2010 in key financial markets around the world entitled Reshaping the audit for the new global economy. The report stresses that auditors should report on risk, governance, the business model and other forward looking information.

 

- ends -

For further information, please contact:
Cecile Bonino
Public Affairs and Media Relations
+32 (0) 286 11 37
cecile.bonino@accaglobal.com

Notes to Editors

         1. ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.
         2. The European Commission's Green Paper Audit Policy: Lessons from the Crisis can be found here on their website: http://ec.europa.eu/internal_market/consultations/2010/green_paper_audit_en.htm
         3. ACCA policy paper Reshaping the audit for the new global economy is  available: http://www.accaglobal.com/pubs/general/activities/library/audit/audit_pubs/pol-af-rtf2.pdf
         4. The report on the ACCA roundtable on Rethinking the value of audit; towards better governance and better adaptation to the markets and the needs of business is available here: http://chicago.accanet.org/databases/pressandpolicy/westernsoutherneurope/RethinkingtheValueofAudit
         5. We support our 140,000 members and 404,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,000 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.

 

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