Professionals from the UK accounting
industry have agreed with many aspects of a report that questioned
audit usefulness, including that better communication is needed
between auditors and regulators.
The Institute of Chartered Accountants in
England and Wales (ICAEW) survey found stakeholders believe the
audit process does not provide useful information to users and is
merely a statement of compliance.
The study was conducted to analyse ways in
which bank auditors can provide more confidence in financial
The study sought the opinion of stakeholders,
including investors, bank representatives and policymakers. It
found stakeholders highly respected auditors’ skills and the audit
process was regarded as essential in imposing discipline upon the
presentation of financial information. However, they did not think
the process provided useful information to users.
Professionals within the industry had
conflicting thoughts on the report.
KPMG UK head of audit Oliver Tant said the
focus of the debate needs to return to the audit opinion “which is
too long and which perhaps, on the basis of the ICAEW survey, does
not put emphasis where it needs to be”.
PricewaterhouseCoopers head of public policy
and regulatory affairs Pauline Wallace read the report more
“I read this as saying assurance provided by
external auditors is valued and [investors] are saying ‘we’d like
to know more’, not that [the report] is useless and does not serve
its purpose,” she said. “It is not for the auditors to take up a
huge chunk of the financial statement to tell [directors] more;
it’s a communication tool for management. The investors are not
saying we want the report longer, but ‘we want to understand more
about the way in which the company is run’.”
Survey respondents called for improved
dialogue between regulators and auditors of major banks.
Deloitte partner Martyn Jones agreed there is
not deep enough communication and the profession needs to revert
back to the ways of the past.
“In the late 1990s, supervision of banks was
transferred from the Bank of England to the [Financial Services
Authority]. [Before the transfer,] a meeting took place at least
once a year between regulators, auditors and clients to discuss the
issues, and that was a very worthwhile form of reporting,” Jones
Jones said a breakdown in communication between
regulators and auditors can have a detrimental affect on the
“If [regulators] are aware of a potential fraud
that may be relevant to our audit, there doesn’t seem to be, in the
UK, a regime in which they would necessarily tell us about that…
[The] duties of regulators need to be looked at again,” he
The study also found stakeholders
thought auditors could do more reporting on risks.
Tant agreed, but warned it must first be
established whether disclosures adequately meet stakeholder
“There is no point worrying about assurance if
we have insufficiently detailed statements from the board as to
risk profile and appetite,” Tant explained.
Wallace added there is a “huge amount” that can
be done for banks regarding reporting on risk.
“You can’t ask the auditors to ‘tell us more
about risk’ until the directors have worked out how to tell the
investors about risk. It has got to be management telling the
investors what they have done with the cash, and then the auditor
providing assurances around those messages,” Wallace said.
Many respondents to the study said it
would be beneficial to know the subjective opinions of auditors.
However, bank representatives felt this was an unrealistic goal, as
there are no objective standards against which judgements could be
Jones said subjectivity already dominates audit
“Let’s be blunt, the audit report itself is
entirely subjective already… and if there is more reporting on risk
that takes us to an area where there is even more subjectivity,” he
The report, Audit of banks: Lessons From
the Crisis, is the second phase of a project that began with
developing a paper for discussion with bank finance directors,
audit committee chairs, investor representatives, regulators and
other interested parties. The ICAEW expects to publish a final
report in May.