London, 29 January 2019 – A poll out today by ICSA: The Governance Institute and recruitment specialist The Core Partnership reveals that just 9% of company secretaries surveyed think that the audit process has improved since the collapse of Carillion. Over half (51%) feel that it has failed to advance with many believing that the industry has learned little from the collapse.
According to Peter Swabey, Policy and Research Director at ICSA: ‘Generally companies feel that it is too early to tell if things have improved to any great extent. What is clear from the results of our poll is that there is very little confidence that proposed changes to the audit regime will lead to improvements in the audit process. On a scale of one to ten, with ten being very confident and one not at all, the average response was a lowly four.’
Some of the concerns voiced about the current state of the audit process were as follows:
- Auditors have become lazier. Instead of sourcing their own documents and reconciling their work they have set up portals to collate documentation in a specific format and push it through an algorithm. This is more efficient from their side but their clients are forced to work harder: basically outsourcing their role to their clients
- There is an issue with management pushing audit firms on fees which reduces their ability to resource audits… an issue perhaps which needs to be monitored more closely by the Audit Committee when fees are agreed. Perhaps they need to ensure that audit firm is happy that they can provide an adequate audit for the fee agreed with management before ultimately agreeing the fee
- Still too close a relationship between management and auditors. Need to find a more appropriate balance between auditors being familiar with the company’s business and the ability to remain inscrutably independent
- Audit is not taken seriously by the big 4 firms; it is a loss leader and seen as a way to access better paying non-audit work
- The gap between what auditors are required to do and what the public think they do is large and needs to be addressed.
When questioned about the best way for the big four accountancy firms to reform, 45% called for audit and advisory businesses to be split within the big four, with one respondent warning that ‘Splitting audit and consultancy firms could materially impact the quality of the pipeline to the audit firms as consultancy firms will look more attractive and can generate fees from a more diversified base. It could also result in a significant increase in audit fees as the firms seek to retain talent.’
Many respondents highlighted increased regulation and monitoring as necessary for reform, with responses including the following:
- Audit firms need to raise their standards to ensure audits are conducted properly and the FRC needs to monitor performance better and intervene earlier.
- Tighter registration and regulations. There is a conflicting interest in providing the audit opinion and seeking reappointment as the auditor.
‘While there is much good work already done that should not be overlooked, it will take time to establish a step change in independence, rigorous challenge and culture. Even then, we need to have shared expectations of what audit is for and what it can achieve. Audited accounts can only provide a level of assurance, they do not mean a company cannot fail,’ concludes Peter Swabey.
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Notes to Editors:
- ICSA: The Governance Institute is the professional body for governance. We have members in all sectors and are required by our Royal Charter to lead ‘effective governance and efficient administration of commerce, industry and public affairs’. With over 125 years’ experience, we work with regulators and policy makers to champion high standards of governance and provide qualifications, training and guidance. Website: www.icsa.org.uk
- The Core Partnership is a niche market recruitment consultancy working with Company Secretaries and their teams to advise on and resource their specialist interim and permanent manpower needs. With relevant professional backgrounds spanning back to the 1980s, The Core Partnership has a wealth of knowledge of the development and dimensions of the role of the Company Secretary. The team provides market advice on relevant qualifications and experience, conducts salary and benchmarking exercises and works throughout the UK and overseas recruiting at all levels to this specific discipline. Website: www.core-partnership.co.uk
- Previous ICSA-Core poll findings can be found at www.icsa.org.uk/knowledge/governance-and-compliance/indepth/comment/quick-question
- This poll is based on answers from 47 respondents across a variety of sectors.