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Quarterly Issue 2

Practically speaking: why audit reform is still vital

Author: ICAEW Insights

Published: 18 Jul 2020

The COVID-19 pandemic has shunted audit reform down the agenda, but the task remains as vital as ever. Sir Donald Brydon’s has made his suggestions, but what happens now? How can those in power best put actions in place for reform?

Businesses are facing a huge strain due to COVID-19 and the route to recovery will require a stronger, more robust audit that better meets stakeholder needs. 

Earlier this year, Sir Donald Brydon suggested the audit profession should embrace the opportunity to begin making changes immediately. In a speech to ICAEW’s Audit and Assurance Faculty in February, he said: “For too long auditors have been defensive and incremental in their thinking: now is a moment to seize … There are many [points] which need neither legislation nor regulation to be enacted.”

ICAEW’s work already focuses on many of the issues raised in Sir Donald’s review. One of his main calls to action – the redefinition of audit – has echoes in ICAEW’s response to Sir Donald’s call for views in June 2019, which introduced the idea of user-driven assurance: a way of engaging with shareholders and other users of audit, to give them a chance to influence and shape the audit and other assurance engagements.

“We are delighted that a number of Sir Donald’s recommendations to promote a user-driven audit are closely aligned with the ideas in our June 2019 submission, including supplementing the statutory audit with a range of other assurance engagements on items such as alternative performance measures,” says Sophie Campkin, Technical Lead, Audit and Assurance.

The Brydon review talked about audit as something that had lost its way – a theme Sir Donald returned to in his speech when he said: “After all, what all stakeholders want to know is: is the company being honestly run and is it likely to have a future?”

The Audit and Assurance Faculty has been looking into how best to deliver this for the past couple of years through its Future of Audit thought leadership essays on the purpose and future direction of audit. 

The series preempts a number of issues raised by Sir Donald, including in relation to accounting records (he wants a review of the Companies Act and the development of guidance for auditors), internal controls and fraud (here he suggests training for auditors on forensic accounting and fraud awareness). 

Some of the issues identified in the Brydon review fall into goals that Michael Izza, Chief Executive Officer, ICAEW, has set out in an action plan, including to deliver a more reliable core audit and to provide assurance for on-demand extras. 

“Now that the parameters for the challenge have been defined, there is an opportunity for us to show initiative – and every indication that such a move would be welcomed by government and the Financial Reporting Council,” says Izza. “These [goals] constitute not just a set of desirable end states against which we can assess any individual proposed measure or combination of measures, but an agenda for action.”

In addition, Izza says ICAEW supports much of Brydon’s vision of an inclusive audit profession. “Although chartered accountancy would continue to be one possible (and, I expect, well travelled) route into the audit profession, entrants from a wide range of non-accountancy academic and vocational backgrounds, of comparable standing and relevance, should be eligible to train and qualify.”