It is time for bold thinking about whether
audit has kept pace with changes to the risks facing modern
business, according to KPMG UK chairman and senior partner John

Speaking at an Institute of Chartered
Accountants in England and Wales event, Griffith-Jones said that
while the past 20 years has seen enormous advances in accounting
technology and systems design, audit has evolved very little.

“Today the incidence of basic bookkeeping
errors in accounts that the audit actually finds are really pretty
low, especially in larger companies that have invested properly in
systems. Essentially, an awful lot of accounts are genuinely right
first time,” Griffith-Jones said.

“Technology has also allowed companies to
provide a constant stream of near real time information so accounts
have the recipe to become documents of record rather than documents
of news. In other words, the world at large has acted on company
data long before the audit report and the notes start to actually
hit the investors’ desks.

“And yet what we do as an audit, or at least
the product, i.e. the actual fair view, remains largely unchanged
from what it was in the early ‘90s.”

Griffith-Jones said the lack of evolution is
odd because the business world is contending with a broader and
faster moving spectrum of risk. Accounting error no longer ranks
highly on boards’ risk agendas.

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“[If there] are risks that are relevant to
those whom the audit report is addressed, there is not much point
saying the accounts are fine if all these things are not fine. You
are missing the point,” he said.

“And where are the auditors in helping to take
this more holistic view? In my mind, nowhere prominent enough or
not as effectively as we could be if we changed the goal posts a

Griffith-Jones suggested three ideas of where
the audit profession can exploit its skills more effectively:

  • Working more collaboratively with the industry regulators such
    as the Financial Services Agency;
  • Working more collaboratively with rating agencies; and,
  • Working much more collaboratively with boards of either audit
    clients or other firms’ audit clients on the design, controls and
    assessment of risk.

The KPMG leader suggested the audit report
could be extended so that it becomes part of a wider overall
assurance report that covers the whole risk framework, including
the front end of annual reports.