London, 2 April 2019 – ICSA: The Governance Institute has today reiterated concerns that the UK audit market will not improve unless issues of education, training and trust are first addressed. It believes that the report published today by the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee does not reflect the realities of commissioning audit work and is another missed opportunity to improve the situation.
Peter Swabey, Policy and Research Director at ICSA: The Governance Institute said: “There is a clear need for reform of the audit market and the BEIS Committee inquiry has identified a number of important issues. While many of the report’s 54 conclusions and 29 recommendations are sensible and proportionate, such as the suggestions around capital maintenance, the implementation of the Kingman review recommendations and for Sir Donald Brydon’s review of the quality and effectiveness of audit, its conclusions do not always reflect the evidence it has received or, more importantly, the realities of commissioning audit work.
“The Committee is right that “the expectation gap must not be allowed to mask the serious failure of audit to deliver on its own current terms”, but we are not convinced that “the delivery gap is far wider than the expectation gap”. Both are significant issues and neither should be overlooked.
“Our members have been consistent in telling us that the audit committees with which they are familiar take their work, especially insofar as it relates to challenging management and ensuring the independence of the external auditor, exceptionally seriously and we profoundly disagree with the Committee’s conclusions on ‘ensuring independence, challenge and professional scepticism’. The suggestion of independent appointment of auditors, in particular, usurps the rights of shareholders to appoint their own professional advisers.
“Other recommendations, such as the full, legal separation of audit and non-audit work and mandatory joint audits have some superficial attractions but are knee-jerk solutions which risk allowing legitimate concerns about the concentration of the audit market to become conflated with the central issue of audit quality. We do not believe that either proposal addresses this fundamental problem.”
ICSA still believes that three areas need to be given more attention in order to improve the audit market:
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Notes to Editors: