Brydon audit review: Sector demands \u2018less talk, more action\u2019<\/p>\n<\/p>\n
To the surprise of no-one, the report proclaimed \u201curgent reform\u201d necessary and suggested separating Britain\u2019s audit sector entirely from the accounting profession as an immediate fix to stop a repeat of such scandals as the collapse of Carillion<\/a>, retailer BHS, bakery Patisserie Valerie<\/a>, and travel agent Thomas Cook<\/a>.<\/p>\n Eschewing the popular view<\/a> of the sector\u2019s general health in the wake of so many large-scale failures<\/a>, Lord Brydon said he believed \u201caudit is not broken but it has lost its way\u201d, and recommended a series of remedies including auditor transparency, targeting corporate fraud and further powers for shareholders to grill auditors at annual investor meetings.<\/p>\n He added that auditing should take the public interest into account, rather than simply applying a tick-box approach to financial statements. However, the most significant aspect is his call for audit to be split from accounting.<\/p>\n \u201cAuditing is too important to be left to an adjunct of another profession: it should be an independent profession in its own right, with its own governing principles, qualifications and standards,\u201d the review said.<\/p>\n The main focus of the Brydon review was on the quality of audit provision for FTSE 350 companies, but some of the recommendations, including the creation of a new audit profession distinct from accounting, will undoubtedly impact the market as a whole, said Steve Gale, head of audit at Crowe.<\/p>\n \u201cThe radical nature of some of the changes that are proposed in this review, as well as the CMA review and Kingman Review that preceded it, should be welcomed for their attempts to make changes that makes audit fit for the future,\u201d said Gale. \u201cIt is critical that this time, unlike with some of the past reviews, that we have action, not just words.\u201d<\/p>\n Also pointing to the other probes, Phil Verity, senior partner at Mazars, said he was pleased the report reflected the importance of auditors in society.<\/p>\n Verity said Mazars felt application of \u201ca core set of principles\u201d, as proposed by Brydon to be established by new regulator the Audit, Reporting and Governance Authority, would help attract and retain the best talent to the sector along with driving up standards.<\/p>\n The sector\u2019s reputation has been tarnished by such high-profile failures, and experts believe the work of many small and medium auditing firms is ignored or brushed over with the focus on a small number of bad apples that have triggered multiple investigations into the auditing and accounting professions.<\/p>\n \u201cThe new government now has in its possession three clear, credible and authoritative reports, which together form a framework for the future of audit,\u201d said Verity. \u201cThe Competition and Markets Authority\u2019s proposals<\/a> strengthen resilience and competition in the audit market, Sir John Kingman\u2019s review<\/a> of the FRC addresses regulatory oversight, and now Lord Brydon\u2019s report sets the tone and aspirations for the future of the industry.\u201d<\/p>\n He said the \u201croadmap is complete\u201d, and it is now incumbent upon the business department to \u201cgrasp the opportunity for profound and lasting reform\u201d.<\/p>\n \u201cThe rigour and quality of audit work must be held to the highest possible standard,\u201d added Nigel Bostock, chief executive of Crowe. \u201cThe audit process is too integral to the proper functioning of society and the economy for anything less to suffice.\u201d<\/p>\n Splitting both audit and accounting may also flush out senior figures who possess one set of skills but not the other, experts said.<\/p>\n \u201cThe problem with the Big Four is that many of the partners who have advanced by being professional auditors are not experienced in the basics of accountancy,\u201d said Ian Smith, financial director and general manager at automated accounts payable and document management software provider Invu. \u201cAccountancy is about recording, classifying and reporting. Auditors tend to take a top-down approach worrying about classifying and reporting rather than recording.\u201d<\/p>\n He said a clear example is the case of the interim finance director appointed at Patisserie Valerie, after the accounting errors and potential fraud, were reported, who endured difficulties reconstructing the recording of invoices in accounts payable despite previously clean audit reports.<\/p>\n Smith said this suggested a lack of understanding of the basic recording of transactions rather than a need to be trained in audit only, and was endemic in Big Four work.<\/p>\n \u201cYou could argue that the errors in the well-reported cases, Patisserie Valerie and Carillion as well, show a lack of basic accountancy skills rather than a lack of audit skills,\u201d Smith said.<\/p>\n Smith also took issue with Brydon\u2019s \u201cpublic interest\u201d audit recommendation, stating he feels there is already too much to report on.<\/p>\n \u201cRather than extending the audit into reporting on every \u2018new thing\u2019 politicians think up around the rather vague term the public interest, they should get back to basics and just report on the balance sheet, profit and loss and cash flow,\u201d Smith said.\u201d<\/p>\n The main thing we can expect in 2020 on the back of so many government probes into audit bungles as technology advances at such pace is disruption, said Smith.<\/p>\n \u201cThe bots are coming! Many of the audit tasks carried out today can now be automated,\u201d said Smith. \u201cThe lesson of many of the failures seems to be that audit has focussed on what is there, rather than what is missing. AI may help here, but I suspect that the commercial skills required to spot the discrepancies will lead to a need for audit partners to only reach that level after working a couple of years in industry, excluding banks, investment businesses or government.\u201d<\/p>\n<\/p><\/div>\n \u00a0<\/p>\n \u00a0<\/p>\n","protected":false},"excerpt":{"rendered":" Sir Donald Brydon\u2019s year-long review into the future of audit landed at the end of 2019 and having spent the festive period chewing over the 138-page document along with their turkey, experts are split over how realistic the proposed fixes are.<\/p>\n","protected":false},"author":2,"featured_media":5779,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[23],"tags":[],"_links":{"self":[{"href":"https:\/\/sloane.co.uk\/wp-json\/wp\/v2\/posts\/3836"}],"collection":[{"href":"https:\/\/sloane.co.uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sloane.co.uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sloane.co.uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/sloane.co.uk\/wp-json\/wp\/v2\/comments?post=3836"}],"version-history":[{"count":0,"href":"https:\/\/sloane.co.uk\/wp-json\/wp\/v2\/posts\/3836\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/sloane.co.uk\/wp-json\/wp\/v2\/media\/5779"}],"wp:attachment":[{"href":"https:\/\/sloane.co.uk\/wp-json\/wp\/v2\/media?parent=3836"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sloane.co.uk\/wp-json\/wp\/v2\/categories?post=3836"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sloane.co.uk\/wp-json\/wp\/v2\/tags?post=3836"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Action, not just words<\/strong><\/h3>\n
Pick one or the other and stick with it<\/strong><\/h3>\n
Rise of the robots<\/strong><\/h3>\n