Auditors should report on risk, governance, the business model and other forward looking information, finds a new report from ACCA (the Association of Chartered Certified Accountants) which gathers expert opinions from a series of roundtables held during 2010 in key financial markets around the world.
The report, Reshaping the Audit for the New Global Economy, reflects discussions held in the UK, Poland, Singapore, Ukraine, Brussels, Zambia, and Malaysia about the future of audit during a year in which the role of audit has come under increasing regulatory scrutiny. Investors, corporates, banks, regulators, auditors and other stakeholders were brought together to give their views.
"It was clear from our events that the audit function is still believed to add considerable value to business by increasing confidence in financial statements," says Ian Welch, ACCA head of policy.
The report finds that auditors can meet stakeholders' needs better by incorporating into the audit report a statement of responsibilities for reviewing risk management and governance arrangements. They should also report on the assumptions underlying the business model and whether these seem reasonable or optimistic.
Greater communication of findings is needed for investors and other stakeholders, suggests the report. Ways need to be found to enable 'red flags' to be raised when auditors become aware of problems. A two-page 'binary' audit report is not sufficient, says the report.
The report also finds that the current audit model needs to evolve and ultimately include reporting on real-time information as more timely reporting helps companies improve and maintain strong credit ratings.
"But auditor liability issues need to be addressed if real change is to happen; like all professional advisers, auditors are very conscious of the risk they run in providing their services to business clients. Change cannot happen if auditors considered that they would thereby be exposing themselves to a level of liability which was unreasonable and which exceeded the business benefit of performing the audit," says the report.
There was concern among some delegates about auditors needing to demonstrate ethics, scepticism and independence. It was essential, participants say, that auditors applied the spirit not just the letter of standards and stood up for what was morally right. In some markets there were also fears of talented people being lost to the profession if fees were not raised to economic levels.
Audit committees are increasingly seen as critical to ensuring the organisation has strong and effective processes relating to independence, internal control, risk management, compliance, ethics, and financial disclosures.
On smaller enterprises, the challenge for the profession, in the face of regulatory pressure for scrapping reporting requirements, will be to establish successful scaled down audit procedures for SMEs.
Many felt that there needed to be increased dialogue between auditor and regulator. Audit committees and auditors should liaise with regulators on key industry trends and risks.
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