Newsflash – Quality and Effectiveness of Audit – Call for Views

Sir Donald Brydon’s Independent Review into the Quality and Effectiveness of Audit (the Brydon Review) has issued a Call for Views, asking for responses by 7 June 2019.

In his foreword, Sir Donald Brydon highlights that this is a first Call for Views in the course of a longer process in the public interest. He says, “The result must be more useful and forward-looking audit… I am clear that this Review must demonstrate an open-minded approach to questions about the purpose of audit, its social usefulness and the extent to which it fulfils users’ legitimate demands… The present Call is neither exclusive nor exhaustive and further topics will be explored in due course.”

He also acknowledges the developments likely to come from the Kingman review into the audit regulator and the CMA’s report, which is expected shortly.

Stephen Griggs, Deloitte UK’s managing partner for audit, said: “It is clear that that the audit product must change, and we look forward to engaging with Sir Donald Brydon on his critical task of redefining the scope and purpose of audit to meet the expectations of all stakeholders. Changes should be considered alongside broader reforms to corporate governance, financial reporting and regulatory frameworks, where audit plays a key part in ensuring trust and confidence.”

The Call for Views consists of 60 questions, backed up with explanatory material regarding the current status and history of audit. The questions have been split into a number of different categories:

• Definitions of audit and its users – who should the audit be for and do we need a formal extension of the audit report? (3 questions)
• The “expectation gap” – does the audit meet the requirements of its users? Should it be more forward-looking? (3 questions)
• Audit and wider assurance – what is the role of audit within the wider context of business assurance? Should external auditors use the work of internal auditors? Should it go beyond the financial statements? (5 questions)
• The scope and purpose of audit – what should the role of the auditors be regarding the internal controls of an entity, its going concern and its viability? (11 questions)
• Audit product and quality – what are the key enablers of audit quality, both in the audit process and the audit product? How is this quality communicated in the audit report and how is it enabled by the regulator? (6 questions)
• Legal responsibilities – how do the responsibilities of directors and auditors interact? What about in areas where more precision may be required, such as capital maintenance? (4 questions)
• The communication of audit findings – could greater transparency aid the understanding of the audit process and the auditor’s perspectives, whilst avoiding unexpected consequences? (3 questions)
• Fraud – is it reasonable and feasible to expect auditors to play a greater role in detecting material fraud? (4 questions)
• Auditor liability – would changes in this area and radical thinking aid an expansion of assurance? (5 questions)
• Other issues, including technology, proportionality, shareholders, culture, and cost (16 questions)

Respondents are free to decide which questions and how many questions they wish to respond to.

Read the Call for Views.

Our governance updates issued in the year can be found at www.deloitte.co.uk/governancelibrary.
 

Scope of the Brydon Review

The Independent Review will examine the existing purpose, scope and quality of statutory audit in the UK, in order to determine:

• the needs and expectations of users of financial and non-financial corporate reporting;
• how far the audit process and product may need to improve and evolve to meet the needs of users and to serve the wider public interest;
• what specific changes to the statutory audit model and wider regulatory framework for audit may be needed to deliver this, including any changes to company law;
• whether other forms of business assurance should be developed or enhanced to enable shareholders and other stakeholders to assess better the future financial prospects and sustainability of companies.