I am pleased to announce my appointment to the Audit Committee of the Chartered Institute of Arbitrators (“CIArb”), the world’s leading qualifications and professional body for dispute avoidance and dispute management.
This appointment builds on my long involvement in dispute
resolution as an expert witness, as well as recognising my expertise in corporate
governance, auditing and financial reporting.
Further details of my experience may be found by clicking here.
The Conservative Party’s Manifesto set out the party’s
aims for audit reform within the following statement: “We are also
strengthening the UK’s corporate governance regime, and will reform insolvency
rules and the audit regime so that customers and suppliers – and UK taxpayers –
are better protected when firms like Thomas Cook go into administration. We
will also carefully study the results of the ongoing investigation into its
Sir Donald Brydon’s review dated December 2019
On 18 December Sir Donald published his 138-page report
into audit reform. His terms of
reference were set by the Government at the beginning of the year and included
the ambitious aim of “seeing the UK at the forefront of corporate governance
internationally. This includes maintaining a leadership position
internationally in terms of the evolution of the audit”.
Sir Donald’s report also includes over 60 other wide
ranging and ambitious recommendations, including strengthened standards for
auditors, more responsibilities for company directors and additional powers for
shareholders and stakeholders to influence audit.
Sir Donald proposes that the new generation of auditors should be trained in forensic accounting and in fraud detection. So, while the higher standard will require auditors to approach their work with suspicion rather than just scepticism, by targeting their work using their forensic accounting skills perhaps we will have better outcomes without increasing fees prohibitively.
The Business Secretary’s priorities
In her editorial for my Institute’s newsletter, Economia, just before Parliament was dissolved in November, the Business Secretary, Andrea Leadsom, asserted that:
“Reform will cover not just the function of the
regulator, but also the purpose and function of audit itself. It will include
proposals on the function and oversight of audit committees and new internal
control arrangements within our great British businesses – key lines of defence
against poor corporate governance. It will also include proposals on the
responsibilities of boards and directors – who need to build trust in the
business activities that they lead. And reform will also look at how both
investors and regulators can better hold companies and their auditors to
account. All of those factors must be assessed and weighed together, so that
the whole package is coherent and effective.”
She ended be stating her aims to be: “I want to
see the UK leading the world in the next phase of improvements in corporate
governance and audit reform.”
The challenge ahead
There has always been an “expectation gap” between what the public expected and what auditors delivered. Like many accountants, I spent my early years as an auditor before concluding that adding forensic accounting skills to my toolbox would allow me to make a much greater contribution in business. While I applaud the introduction of forensic accounting training for auditors, and the need for them to approach their work with suspicion rather than mere scepticism, introducing these changes will require huge effort by regulators, trainers and the new firms themselves.
Some of Sir Donald’s recommendations may be implemented relatively early but others, such as creating a separate audit profession with its own governing principles, standards, and professional qualifications is a big step, and will take time to implement, and require a lot of work with the inevitable cost falling on business.
In our interconnected world, any changes introduced
in the audit of major UK companies will need to be mirrored in other major
economies if UK auditors are to be able to meet these new standards. The UK will need to encourage the accountancy
professions in other countries to adopt these proposals as well.
In addition to Sir Donald Brydon’s review, the Business
Secretary has three other major reviews on various aspects of the profession to
address – the future of the Financial Reporting Council (Sir John Kingman),
reform of the audit market (Competition and Markets Authority) and the future
of audit (the Department for Business, Energy and Industrial Strategy’s own Committee).
The Business Secretary certainly has her work cut out if she
is to implement these ambitious aims in the next 12 months. As always, the devil will be in the detail
and I suspect we will see more limited reform within this timetable, leaving the
more ambitious aims for another day.