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UK needs Sarbanes-Oxley style regime says ICAS

ICAS (The Institute of Chartered Accountants of Scotland) is calling for the UK to implement a US-style Sarbanes-Oxley regime on internal controls, to make audit fit for purpose for the 21st century.

In its response to Sir Donald Brydon’s ‘call for views’ on the quality and effectiveness of audit, ICAS is also urging for increased transparency and greater accountability for directors, as part of an overhaul of the UK’s corporate reporting ecosystem.

Bruce Cartwright CA, ICAS CEO, said: “The importance of restoring public trust in audit cannot be underestimated, and ICAS is proud to be playing a leading role in this area.

“The time is now to build on the strong audit regime we already have and this is why we are calling for evolutionary change to shape the future of audit in the UK. Our proposals will further enhance the UK’s respected governance framework.”

ICAS believes there is a strong argument to introduce a proportionate UK version of the Sarbanes-Oxley regime. This will bring a stronger focus over the controls and the checks and balances that are in place to manage a business. This approach, says ICAS, also re-emphasises that responsibility for the preparation of financial statements rest with the directors of the entity.

In this the ICAS is at odds with some members of the profession, Mazars, in its response to Kingman, said further analysis is needed before the implementation of UK Sarbanes-Oxley: We believe a careful and thorough study should be made of experience in relation to it in the US and consideration given to differences between the corporate and regulatory cultures and structures in the two countries.”

 ICAS believes the inclusion of a broader responsibilities chart at the front of the annual report, and/or on a company website, may help to better convey to stakeholders the respective responsibilities of the key players, including the directors and auditors.

As recognised by the Kingman review, ICAS says there is a need for an effective enforcement regime for directors of public interest entities. However, the scope of this regime should cover all directors, and these reforms should be progressed as soon as possible.

In order to aide transparency, consideration should be given to mandating searchable online annual reports. Consideration could also be given by the new regulator in publishing what it sees as the generic accountability and assurance model for corporate UK, then requiring each company to present their own version of this as part of the description of their business model in the annual report. Auditors should be asked to provide assurance over KPIs. This would not be on whether the KPIs are the right ones to assess the performance of an entity but rather, over whether they had been compiled appropriately.

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