In the wake of some spectacular corporate disasters, the accountancy profession in general, and auditors in particular, have rightly come in for a lot of flak for their failure to rein in wayward and over-exuberant company directors whilst still pocketing the fees. Some of the suggested solutions have ranged from the sensible to the equivalent of a public hanging to appease the baying crowd (e.g. politicians).
Commissioned by the Government to write an independent report on the effectiveness of audit, Sir Donald Brydon duly produced a 138-page report just prior to Christmas. The document contains no less than 64 recommendations. What is important for me, not just as a Chartered Accountant but as a director myself, is that whatever changes are ultimately adopted, they represent change for the better not simply for blind retribution. Further, that the rules should apply to companies of all sizes – not just be aimed at constituents of the FTSE 100, but to our army of SMEs.
Sir Donald makes a plea for auditors to move on from being mere checkers of compliance rules, making the important distinction between providing information and actually being informative. Interestingly – especially as, in a past life, he was chairman of the London Stock Exchange – he calls for better information to be available for a company’s shareholders and ‘other users’. I assume he means suppliers, customers and providers of finance, all of whom help in their own way to fund a business. That would include outfits like ArchOver, so his suggestion gets my vote – ‘vote’ being the operative word.
Auditors are appointed by the directors of a company, but shareholders get to show their approval of the appointment by way of a vote at the AGM. Maybe ‘the others’ should have a vote, too, albeit on a weighted basis. Discuss.
High on his list of recommendations, Sir Donald suggests the creation of a separate professional body to represent auditors within ARGA, the successor to the Financial Reporting Council. He wants the ICAEW to play a leading role in making sure that auditors take up the challenge to produce a more ‘informative audit report to the company’s shareholders and other users’.
What’s of paramount importance is that users can rely on the accuracy of a set of accounts and have faith in the probity of the professionals retained to produce them.