Regulators around the world continue to seek effective solutions to address the continued instances of corporate collapse, fraud, substandard audit performance, and inadequate transparency that threaten the credibility of financial reporting. To determine this, three studies had been carried out and the UK’s Department for Business, Energy & Industrial Strategy (BEIS) issued a consultation paper, proposing measures to be taken in response to the studies. Some findings of the studies are discussed below:
Study by the Financial Reporting council (FCR) found that the existing regulator lacked the necessary powers and clarity of purpose to hold auditors and directors sufficiently to account and recommended that it be replaced.
Study by Brydon concluded that statutory audit needs to become more informative, and that higher expectations should be placed on both directors and auditors to deliver more useful information to the users of reports.
Competition and Markets Authority (CMA)
Study by the Competition and Markets Authority (CMA) showed an unhealthy dominance of the statutory audit market for larger companies by a small number of audit firms and called for new measures to increase quality, competition and resilience in the delivery of audit.”
The objectives of the proposed measures by the UK’s Department for Business, Energy & Industrial Strategy (BEIS) are to restore public trust, ensure responsible corporate governance, empower stakeholders with access to reliable and meaningful corporate information. Some of the measurements are:
- Issue an Audit & Assurance Policy describing the approach to seeking internal and external assurance of reports to shareholders
- Conduct an annual internal control review, and report on the effectiveness of controls.
- Describe in the audit report, the work performed to understand internal control for purposes of the audit and the impact of the audit
- Provide an opinion on the directors’ report on internal control effectiveness.
- Report on accuracy of directors’ actions to prevent and detect material fraud.
- Propose a framework for the new Audit, Reporting and Governance Authority (ARGA).
- Give ARGA new or added powers to: Increase competition through a managed share audit approach, where the firm leading a group audit would be required to use a smaller audit firm for a part of entities within the group.