PwC UK has launched a
campaign to improve the transparency of the audit process by
disclosing more information in audit committee governance reports.
The firm’s audit partners are asking audit committee chairs to
include more narrative on the audit process, including
conversations auditors have about significant risks of
misstatement.
To begin with, the firm is
targeting the audit committee chairs of its FTSE 100 clients with a
vision to approach all listed clients. PwC audits about 39% of the
FTSE 100.
PwC senior audit partner
Andrew Ratcliffe said the audit committee governance report, which
sits in a company’s annual report, is the best vehicle to disclose
additional information on audit due to the freedom committee chairs
have over narrative. Changing the format of a formulaic audit
report, which is governed by standards, would be a lengthy process
that involves changing the law.
Information disclosed could
include significant risks auditors put in their audit plan and the
significant judgments and issues discussed when closing off the
accounts.
“I don’t think we aren’t
going to be saying anything that an intelligent reader of the
accounts wouldn’t suspect that the audit is doing anyway,”
Ratcliffe said. “For the non-technical reader it draws those out
and says, ‘when you are looking at this company these are the
things that are the risks’.”
KPMG Audit Committee
Institute head Tim Copnell said he would welcome any initiative
that improved transparency, but consideration needs to be given to
the personal liability of audit committee chairs.
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By GlobalData“As a non-executive audit
committee chairman you have to start thinking am I taking on extra
liability by signing this report,” Copnell said. “I guess it would
be one for the courts to decide if something went wrong. I don’t
think chairs would object to the disclosure of the
information.”
Association of British Insurers assistant director of
capital markets Michael McKersie believes investors will be warm
towards better governance reports, although is uncertain on whether
it should be up to auditors or audit committees to disclose
this.
