Newsflash: Independent review into the quality and effectiveness of audit
The Secretary of State for Business, Energy and Industrial Strategy (BEIS) has asked Sir Donald Brydon to conduct a review into the quality and effectiveness of audit. The objective of the review is to address the perceived widening of the “audit expectations gap” - the difference between what users expect from an audit and the reality of what an audit is and what auditors’ responsibilities entail.
The review is intended to take a fresh look at the scope of the audit, how far it can and should evolve to meet the needs of users of accounts, what other forms of assurance might need to be developed, and to define and manage any residual expectations gap.
Specifically the review will consider:
- Understanding the needs and expectations of stakeholders who make use of company audits:
- the origins and perceptions of the expectations gap;
- what can be done to ensure that investors and other stakeholders fully engage with audit and understand its scope and limitations.
- The scope of audit:
- what information future investors and the users of corporate information are likely to require a company to produce (drawing on the work of the FRC in this regard) and, in that context;
- what assurance investors and other users of corporate information will need; and
- how any extension of that assurance can be achieved at a proportionate cost to corporates.
- How assurance is provided and how that assurance can be made more effective for investors:
- from whom and how the assurance should be provided;
- the extent to which auditors can and should assess whether underlying information is reliable;
- the extent to which auditors can and should assess the impact of uncertain future events; and
- how audit can respond to the opportunities and challenges of new technology and other forms of innovation to increase the assurance and effectiveness of audit.
- How any change to the current statutory audit model will impact on the potential liability of auditors.
- How communication of audit findings to users can be improved to enable that information to be of more use.
- The potential benefits and opportunities for international engagement and cohesion across the world on auditing standards.
Sir Donald will be supported by Advisory Groups that will advise on the direction of the review and sources of evidence and will help to scrutinise and challenge emerging findings and recommendations. Whilst the precise structure of the Advisory Groups is still to be determined, the announcement suggests that there will be a user dominated group, an audit profession group and a technology group.
Sir Donald is expected to submit a report to the Secretary of State for Business, Energy and Industrial Strategy by the end of 2019. The final report will be published and the Government will consult on its response to the review’s recommendations.
The full announcement of the review can be accessed here.