Enhance the Role of Audit, say Global Finance Experts

By Acca, PRNE
Tuesday, November 23, 2010

But the Spectre of Audit Liability Looms Large in Face of Much Needed Change

LONDON, November 24, 2010 - Auditors should report on risk, governance, the business model and other
forward looking information, finds a new report from ACCA (the Association of
Chartered Certified Accountants) which gathers expert opinions from a series
of roundtables held during 2010 in key financial markets around the world.

The report, Reshaping the audit for the new global economy, reflects
discussions held in the UK, Poland, Singapore, Ukraine, Brussels, Zambia, and
Malaysia about the future of audit during a year in which the role of audit
has come under increasing regulatory scrutiny. Investors, corporates, banks,
regulators, auditors and other stakeholders were brought together to give
their views.

Ian Welch, head of policy at ACCA, says: "It was clear from our events
that the audit function is still believed to add considerable value to
business by increasing confidence in financial statements. But there was also
a clear sense of frustration that more could be done to meet stakeholder
needs and that the considerable work that goes into an audit should be better
communicated. And the fact that there had been some banking and corporate
failures in which auditors had not apparently been able to provide any
warnings to stakeholders of looming problems was a cause for concern.

"But they key problem is to find an answer to the liability issue.
Delegates consistently stated that this was a roadblock to innovation and to
auditors taking on further responsibilities. The global round-table series
has shown there is, overall, a positive view of what audit can bring to
economies. It is essential in the years ahead that the profession,
policymakers and other stakeholders set out a path way to overcoming some of
the issues this series has identified."

Some of the key findings were:

1. Audit needs to be broadened in scope - as well as reporting on
historic financial statements, auditors can meet stakeholders' needs better
by incorporating into the audit report a statement of responsibilities for
reviewing risk management and governance arrangements. They should also
report on the assumptions underlying the business model and whether these
seem reasonable or optimistic.

2. Greater communication of findings is needed for investors and other
stakeholders. Ways need to be found to enable 'red flags' to be raised when
auditors become aware of problems. A two-page 'binary' audit report is not

3. The current audit model needs to evolve and ultimately include
reporting on real-time information. More timely reporting helps companies
improve and maintain strong credit ratings.

4. But auditor liability issues need to be addressed if real change is to
happen; like all professional advisers, auditors are very conscious of the
risk they run in providing their services to business clients. Change cannot
happen if auditors considered that they would thereby be exposing themselves
to a level of liability which was unreasonable and which exceeded the
business benefit of performing the audit.

5. There was concern amongst some delegates about auditors needing to
demonstrate ethics, scepticism and independence. It was essential,
participants said, that auditors applied the spirit not just the letter of
standards and stood up for what was morally right. In some markets there were
also fears of talented people being lost to the profession if fees were not
raised to economic levels.

6. Audit committees are increasingly seen as critical to ensuring the
organisation has strong and effective processes relating to independence,
internal control, risk management, compliance, ethics, and financial

7. On smaller enterprises, the challenge for the profession, in the face
of regulatory pressure for scrapping reporting requirements, will be to
establish successful scaled-down audit procedures for SMEs.

8. Many felt that there needed to be increased dialogue between auditor
and regulator. Audit committees and auditors should liaise with regulators on
key industry trends and risks.

Ian Welch concludes: "For all the issues and concerns raised over the
course of a year, there was no serious questioning of the importance of the
role of audit or whether it was necessary. The profession can meet the needs
of its stakeholders by being willing to take on wider responsibilities in
terms of audit scope. But at every round table the spectre of liability hung
like a deadweight across discussion.

"More pro-activity and giving opinions on different areas equals more
potential for litigation. In theory the market should find a solution. In
reality governments must step in and end the log-jam by giving auditors the
reasonable protection that will enable them to break free from the
boiler-plate language so many participants complained about."

Notes to Editors

1) ACCA (the Association of Chartered Certified Accountants) is
the global body for professional accountants. We aim to offer
business-relevant, first-choice qualifications to people of application,
ability and ambition around the world who seek a rewarding career in
accountancy, finance and management.

2) We support our 140,000 members and 404,000 students in 170
countries, helping them to develop successful careers in accounting and
business, with the skills required by employers. We work through a
network of over 80 offices and centres and more than 8,000 Approved
Employers worldwide, who provide high standards of employee learning and
development. Through our public interest remit, we promote appropriate
regulation of accounting and conduct relevant research to ensure
accountancy continues to grow in reputation and influence.

3) Founded in 1904, ACCA has consistently held unique core values:
opportunity, diversity, innovation, integrity and accountability. We
believe that accountants bring value to economies in all stages of
development and seek to develop capacity in the profession and encourage
the adoption of global standards. Our values are aligned to the needs of
employers in all sectors and we ensure that through our qualifications,
we prepare accountants for business. We seek to open up the profession to
people of all backgrounds and remove artificial barriers, innovating our
qualifications and delivery to meet the diverse needs of trainee
professionals and their employers.

    For further information, please contact:

    Laura Strong, ACCA Newsroom

For further information, please contact: Laura Strong, ACCA Newsroom, +44(0)20-7462-8921, lstrong at ruderfinn.co.uk

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