Audit Quality Forum to review ‘expectation gap’ in audit

The Audit Quality Forum (AQF) is the latest body to launch a probe into audit practice, announcing an independent review to tackle issues of audit quality and business confidence by looking at how audit can better serve the needs of business and wider society

Formed in 2004 at the instigation of the government, the AQF is supported by ICAEW, the Financial Reporting Council (FRC) and the Department for Business, Energy & Industrial Strategy (BEIS).

The AQF says its most recent event identified demand for audit to address the ‘expectation gap’ that exists between what users of financial statements receive from audits and what they and wider society want, noting that the urgency of this work has been underlined by recent negative media coverage of audit.

Many investors and stakeholders see the value of audit, but want more from their audit reports and are not satisfied with the current scope. There are also demands from employees, pensioners and the wider society for audit to change, the AQF reported.

The independent review will take a fresh look at how audit can better serve the public interest. Its precise scope of the review has yet to be finalised, but it may include an examination of what is happening in the business world that is driving the audit expectation gap, as well as an assessment of what stakeholders will expect from audit in the future.

In addition, the review will consider how audit can deliver trust, and the tangible steps that need to be taken now to drive improvements in confidence. 

The AQF says it is too early to say how long the review will take as work is only just beginning. One option being considered is to issue an interim report after 12 months of the review’s start and a final report six months later which will include a set of findings and practical recommendations for stakeholders to implement.

There are currently four other reviews of the sector in progress. The Competition and Markets Authority (CMA) is undertaking a market study, focusing on whether the dominance of the Big Four is stifling competition. It intends to complete its work by the end of the year and publish findings early in 2019.

Separately, the Kingman review of the future of the FRC held a consultation this summer and is scheduled to deliver its findings to government before the end of 2018.

In parallel with the independent Kingman review, the FRC has launched its own ‘developments in audit’ programme which encompasses work on auditor independence, audit quality, the future needs of investors and corporate viability.

Additionally, Labour’s shadow Chancellor John McDonnell announced in May that the party had commissioned an independent review of the corporate auditing and accounting regime in the UK. This is being led by Professor Prem Sikka, who is professor of accounting and finance at the University of Sheffield, and is due to publish recommendations later this year.

Report by Pat Sweet

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