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Rethinking the value of audit: towards better governance and better adaptation to the markets and the needs of business

Date

23 Nov 2010

Sections

Euro & Finance

The failure of auditors to successfully communicate what they do to a wider audience results in an expectations gap which can distort perceptions of auditors' work - according to a roundtable on the value of audit organised by global accountancy body ACCA (the Association of Chartered Certified Accountants) on 18 November.

The role of audit is currently under heightened scrutiny. The unprecedented global financial turmoil of the past two years has seen commentators questioning the value of audit at the large public company level. In this vein, Internal Market Commissioner Barnier published a Green Paper entitled Audit Policy: lessons from the crisis on 13 October to initiate a debate on the role of the auditor - including communication by auditors to stakeholders; the status of International Standards on Auditing; the governance and independence of audit firms; supervision, concentration and market structure; the creation of a European market; simplifications for Small and Medium Sized Enterprises (SMEs) and international co-operation.

Audit continues to play a key role as a source of public confidence in the financial reporting supply chain - by promoting transparency, accountability and sound financial management and by helping to deter financial wrong-doing. However, the value of audit needs to be constantly tested against the demands and needs of users and beneficiaries of audit. The Green Paper provides the opportunity for the accountancy profession to re-examine the role of audit and to question what can be done to enhance the benefits that audit can provide to businesses, the economy and society.

These issues were at the heart of an animated debate during a roundtable organized by ACCA entitled Rethinking the value of audit: towards better governance and better adaptation to the markets and the needs of business that brought together decision makers from the European Commission and the European Parliament, academics, SMPs/SMEs practitioners, representatives from the financial services, business and the audit profession.

Robert Stenhouse, Chair of the ACCA audit committee, who chaired the meeting said: “There is consensus that audit is not broken, but that there is room for change. The event demonstrated that everybody is keen to achieve change that enhances audit quality whilst supporting EU businesses and maintaining confidence in EU capital markets. One outcome from the Green Paper is essential: that the concept of the expectations gap is finally put to rest”.

Delegates agreed that audit is still seen by managers, audit committees and the markets as useful and even essential for their respective purposes, although those stakeholders still saw potential for innovation in terms of the auditor's remit. But the debate highlighted that there is a pressing need for more efficient communication on what auditors do, whether this is achieved via the audit report itself or by other means. The failure to communicate effectively the objectives of the audit, and the work undertaken by the auditor, is one of the main reasons for the expectations gap and for unjustified criticisms of auditor performance.

Some participants linked the expectation gap to the issue of liability reform, stressing that audit is just one part of a wider financial reporting chain and that each link in the chain must assume responsibility for its own involvement in the process. The significance of this wider context was acknowledged.

"The debate about the future of audit should not take place in isolation. While the profession must be open to new ideas for resolving specific technical problems and for responding to market demands, these issues need to be considered in the light of the prevailing concerns about the whole framework of corporate reporting and whether it serves the information needs of users" said John Davies, ACCA's head of Technical, who moderated the event.

- ends -

For further information, please contact:
Cecile Bonino
tel:+32 (0) 2 286 11 37
mob: +44 (0) 7809595008
cecile.bonino@accaglobal.com

Notes to Editors

1. ACCA’s paper on Restating the Value of Audit is available at http://www.accaglobal.com/page/3305046 :
                    

2. ACCA 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. We have 362,000 students and 131,500 members in 170 countries worldwide.
                    

3. ACCA has worked with governments, national organisations and development agencies in emerging economies- for over 20 years- promoting the accounting profession, to create value for the communities, businesses and individuals it serves.
                    

4. ACCA believes that globalisation of business means that one set of reporting standards is essential. We favour the principles-based IFRS.
                    

5. ACCA understands the real issues facing small businesses as 63,000 of our members work in SMEs or small partnerships worldwide.

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