Audit committee chairs appear
open to providing more information in their governance reports in
order to improve the transparency of the audit process, PwC UK
senior audit partner Andrew Ratcliffe said.
PwC audit partners are now
approaching the audit committee chairs of FTSE 100 clients to see
if they would support an initiative to disclose more information in
their reports.
“We had one client where we
talked it through with them and their reaction was that it is a
good idea and they would do it,” Ratcliffe said.
“In fact, they are now
drafting [the audit committee chair report] on that basis. It is
probably still a work in progress, but I am not aware of anybody
who said, ‘No, definitely not, over my dead body’.”
PwC’s transparency campaign
encourages audit committee chairs to disclose auditor
conversations, such as significant risks of
misstatements.
An audit committee governance
report, which sits in a company’s annual report, is thought to be
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.
The success of the campaign
will hinge on ensuring the new style of report is concise, easy to
understand and does not add excessive pages or complexity to annual
reports; PwC’s mock-up of a new governance report is about
one-and-a-half A4 pages in length.
Ratcliffe said a future step
towards improving transparency is to provide more meaningful
assurance over narrative reports. At present, auditors are only
required to read narrative reports and flag something that is
inconsistent with the financial statements or factually
incorrect.
“It is a limited brief and
it’s a negative assurance,” Ratcliffe said.
“Maybe we should talk about the narrative statements being
a fair presentation or a faithful narrative of something that gives
a higher level of assurance than this convoluted negative thing we
have at the moment.”
