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October 10, 2010

PwC auditors launch transparency campaign

PwC UK has launched a campaign to improve the transparency of the audit process by disclosing more information in audit committee governance reports.

This week, the firm’s audit partners are approaching audit committee chairs to include more narrative on audits, including conversations auditors have about significant risks of misstatements.

To begin with, the firm is targeting the audit committee chairs of its FTSE 100 clients with a vision to approach all listed clients. PwC audits about 39% of the FTSE 100.

PwC senior audit partner Andrew Ratcliffe said audit committee governance reports, which sit in a companies annual report, are the best vehicle to disclose additional information on audit due to the freedom committee chairs have over their narrative. Changing the format of a formulaic audit report, which is governed by standards, would be a lengthy process that involves changing the law.

“We thought where else could we disclose something about the audit,” Ratcliffe said. “Under auditing standards there is a list of things the auditor is obliged to report to the audit committee. If you are reporting that to the audit committee and the committee is standing there as proxy for shareholders, then why wouldn’t you tell the shareholders that?”

Disclosing risk

The sort of information disclosed could include the significant risks auditors put in their audit plan and the significant judgments and issues discussed in closing off the accounts.

“I don’t think we aren’t going to be saying anything that an intelligent reader of the accounts wouldn’t suspect that the audit is doing anyway,” Ratcliffe said. “For the non-technical reader it draws those out and says, ‘when you are looking at this company these are the things that are the risks’.”

Ratcliffe said disclosing more information will not place audit committees or auditors at greater  liability risk because this information can easily be obtained by lawyers investigating a company’s accounts.

“This is about us being transparent about what we do, its not saying the audit committee should tell everybody more about what they do,” Ratcliffe said.

“We are going through the audit committee report route simply because that’s the easiest and quickest way to do this.”

Whether audit committee chairs are receptive of this idea remains to be seen, but PwC hopes that client momentum will eventually improve transparency and the understanding of audit.

 

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