Time to rethink bank audit from scratch
The auditing of banks is under the microscope and last week the House of Commons Treasury committee heard some radical proposals for dealing with it
Effectively the proposal, from professor Prem Sikka, at Essex University, is
to do away with private sector involvement and hand the audits over to the Bank
of England, the Financial Services Authority or another dedicated state
institution.
His argument is that private sector audit is too conflicted to be an
effective independent auditor of institutions that are so systemically
important.
Agree with Sikka or not, there is something in the issue about the banks
being so important to the economy as a whole that their audits should be
approached in a substantially different way to other commercial audits.
Professor Michael Power’s suggestion that now is the time to rethink the
role of the auditor from scratch looks like a convincing one.
As the financial crisis escalated it was clear the public perception of
audits did not tally with that of the auditors. Many expected audits to do more
than they actually did or was possible to do, creating an audit expectation gap.
The role of the auditor, their relationship with the regulators and banks and
who the auditor is, needs revisiting.
It’s because of this that it already seems clear the question of who should
audit the banks cannot rest with the Treasury committee alone. Its review will
only scratch the surface. Getting to the heart of an audit expectations gap will
need a properly conducted review involving all key players, regulators,
investors, academics and the profession. Government will need to grasp this
because there’s a job to be done. The sooner it’s started the better.
