A survey has revealed that just 9 per cent of company secretaries surveyed think that the audit process has improved since the collapse of Carillion. Over half (51 per cent) feel that it has failed to advance with many believing that the industry has learned little from the collapse. The survey was conducted by ICSA: The Governance Institute and recruitment specialist The Core Partnership.
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 10, with 10 being very confident and one not at all, the average response was a lowly four.”
Some of the opinions voiced about the current state of the audit process were:
- 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 point of view, but clients are forced to work harder. Some saw this as outsourcing their role to clients
- The relationship between management and auditors is still too close. 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 Four 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 this needs to be addressed.
Splitting services
When asked the best way for the Big Four accountancy firms to reform, 45 per cent called for audit and advisory businesses to be split within the Big Four. Big Four firms themselves have suggested this as a way forward. However, it is not a straightforward solution.
One respondent to the survey said: “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 said new regulation and monitoring are needed. Responses included 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 conflict of 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,” said Peter Swabey.