By Sue Almond, ACCA technical director
The preliminary findings from the Competition Commission (CC) issued on a cold February Friday morning made an interesting read and contained enough surprises to have practitioners from all sizes of firms spluttering into their cornflakes.
The whole point of this investigation has been about the audit market’s structure. But we mustn’t lose sight of the bigger picture. One of the key themes that came through in the report is the importance of transparency – whether by the auditor, the company or the audit committee. The recent work of the various bodies considering the audit market, such as the CC and the EC, has provided far more light on the structure and activity of the audit market than has ever been the case before. This in itself is valuable and provides evidence on which to challenge, or not, the status quo.
There is also little mention of the value of audit – a critical point in difficult times. It is always tempting to see audit as ‘red tape’ that can be cut, but it must be remembered that auditors act as society’s eyes and ears to report fraud, bribery-and money laundering activities. They also assist the assessment and collection of both direct and indirect taxation, so the future of audit services needs to be assured and supported. This means not just looking at the providers of audit services, but the services themselves – are they meeting the needs of users, and are the providers encouraged to innovate and develop?
For ACCA, the issue has always been about the end-user of audit services, and we have previously said that future recommendations on the audit market need to be workable for business while enhancing investor confidence. The input from these stakeholders will be critical in shaping the final recommendations of the CC if they are to achieve the broader goal of creating an audit market that is trusted and brings most value to business.
Audit is only one part of the financial jigsaw and it is not the only way to tackle investor concerns. Progress could be made without creating more rules by enhancing corporate reporting through integrated reporting. This development aims to reflect the interconnected nature of economic and financial performance with environmental, social and governance factors in organisations’ annual reporting.
Which brings us back to transparency and its role. Companies can tell the story of what they do and how they do it in a very accessible way. Audit committees can be more open about why and how they have chosen their auditors, and auditors should be shouting from the rooftops what they do and the value it adds