Key accounting judgements challenged by the audit committee should be published in banks’ annual reports, says a new report by ICAEW.
Enhancing the Dialogue Between Bank Auditors and Audit Committees is a piece of thought leadership, and follows the Audit of Banks: Lessons from the Crisis report, published in 2010.
It’s well worth a read (PDF 1.1Mb/28 pages).
The reason for exposing challenges by the auditors to the audit committee in banks is to create more transparency.
If challenges and their ensuing debate are not recorded, how can people know they take place? And how can they recognise the value of audit? Some of the challenges may be the same questions that interest shareholders and other stakeholders.
Of course, challenges are not always the best way of obtaining a true and fair picture of banks. We know the auditors must be a position to work constructively with the audit committee. Used in the right way, investors should welcome effective cooperation and not view this with suspicion.
However, from our earlier research, The Audit of Banks report, we found that because much of the bank audit process takes place behind closed doors, people couldn’t see the evidence that auditors were questioning banks and holding them to account.
We believe that, post banking-crisis, public confidence in banks will only be restored through increasing transparency.
The report also recommends that the story of the audit is told to the public in clear language that a non-specialist could understand.
The Enhancing Dialogue report was prepared by ICAEW’s Financial Services Faculty, and involved a working group with bank audit partners, audit committee chairs and other experts.
It is one of several pieces of work we have done on audit. As you will know, there are currently many initiatives looking at audit –for example, in the EU, in the House of Lords (next debate 14 March) and by the US regulator.