Last week’s report on competition and choice in the audit market
from the House of Lords Economic Affairs Committee provides much for the profession to digest.
What could have been a considered and comprehensive review of the role of auditors in the crisis is in danger of being eclipsed by the report’s harsh rhetoric. As a result, it risks undermining confidence in audit more generally and the high standards of work undertaken by auditors up and down the UK. In my view, this isn’t the message we should be sending out.
Let me be clear. As I said on Wednesday
, I do not agree with their Lordships view that the auditors contributed to the severity of the financial crisis. As the Treasury Select Committee concluded in 2009, there is little evidence to suggest that auditors failed in their duties in the run up to the financial crisis. Auditors play a crucial role in the overall governance and oversight of companies, a role that in the European Commission’s view is “...key to financial stability.” The FRC’s own Audit Inspection Unit acknowledges that the quality of audit in the UK is very high.
That is not to say that we can’t do things differently. As a profession, we must be prepared to learn the lessons from the crisis and ask ourselves, how does the audit model need to evolve to meet changing market needs?
We haven’t been waiting for the Lords’ report to do this. Indeed, we started exploring ways to address some of the issues raised in the report over two years ago. The dialogue between supervisors and bank auditors is one such example. The draft code of practice for dialogue between supervisors and bank auditors is the result of our initiative, one that was praised in the Lords report.
This is the message that we need to get across - that we are open and willing to keep innovating to ensure that audit helps build and maintain confidence.