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.