The Institute of Chartered Accountants in England and Wales CEO Michael Izza has described audit in its current form as an outdated product, in a video published on IFAC’s website.
In the video, Izza addressed the question of what more the profession can do to address the audit expectations gap can. He said: “In many countries across the world, we are actually auditing in the 21st century with a 20th century product.”
The expectation gap is a hot topic in the UK currently, after a number of high profile company collapses led to political and public scrutiny of the audit market. The UK government has commissioned the Brydon Review which main focus is to look at the expectations gap and how audit standards can be updated to address this.
Izza noted that auditors can take measures to make audit more relevant for modern business, citing the development of technology as a facilitator for this.
He explained that historically, auditors have not been able to look at every transaction that a company undertakes in a financial accounting period but now, through the use of technology, auditors can sample billions of transactions.
Additionally, he talked about the questions which arise when a company fails shortly after receiving a clean audit opinion. He noted that although a clean audit opinion is not going to guarantee that a company continues, but admitted there are things that could be changed around going concern.
He proposed that one way of achieving this would be by expanding the viability statement and doing more work around the working capital requirements that the board sign off. He said this could give readers of the accounts and owners of the business more confidence that the company will continue to operate.