Alex Russell’s predictions in January revolved around government consulting on various audit and corporate governance reform measures, including a new public interest entity (PIE) definition, enforcement of existing corporate reporting duties of directors, and the establishment of the Audit Reporting and Governance Authority – in some form. That proposal for a government bill was withdrawn in late January.

“The government still intends to put the Financial Reporting Council on a statutory footing after proposing that in the Kingman Review in 2018,” says Russell. “But what else has changed? Well, in the absence of an audit reform bill, member firms have still had to tackle some of big issues this year, including the impact of AI in audit and increasing demand for sustainability assurance.” 

AI and non-accountant contributions to audit

Firms are looking to develop the right skills to enable high-quality adoption of AI technology in audits.

“What we keep hearing from members, especially from mid-tier and smaller firms, is that there are lots of providers of AI tools and solutions out there,” he says. “So making the right investment decisions for their scale of firm are key to improving audit quality and efficiency.”

Russell says that the scale and variety of information now included in annual reports, such as sustainability information, means members might need to engage more with specialists on audits – including non-accountants – an issue many firms continue to grapple with.

Modernisation of Corporate Reporting

Over the next half of the year Russell hopes to see the government's Modernisation of Corporate Reporting agenda fill the gap left by audit reform.

“We might see deregulation,” he says. “It is a great opportunity to consider if what we're doing is too much, and can any regulation be simplified for the benefit of members in business, as well as members in audit.”

Sustainability assurance

Russell raises the growing importance of sustainability assurance, pointing to the Financial Reporting Council’s (FRC) work on a voluntary sustainability assurance register that could be launched later this year. He says: “It will give clarity to the market around who can deliver those engagements, and that will be really important.”

Alongside this, ICAEW published A Buyer's Guide to Assurance on Sustainability Information in June that will support decision making around assurance procurement.

FRC’s supervisory strategy update

The next six months and beyond will be extremely important in terms of quality management and standards, according to Russell.

“We've had the FRC updating its supervisory strategy, to focus more on firms’ systems of quality management,” he explains. “ICAEW hopes to support the FRC in trying to help firms in the mid-tier, including aspiring PIE auditors, to land on a system of quality management that's size appropriate. So, we'll be engaging with member firms on that.”

Change of government’s impact on audit

“Changes in senior government and the cabinet could have an impact on audit and corporate governance reform, because that could lead to narrowing the scope of the Modernisation of Corporate Reporting programme,” warns Russell.

“So we'll watch this space and ICAEW will stay close to developments from the government, because that really will be a signpost to where the corporate reporting and audit professions will go this year.”