Brydon criticises ‘shotgun’ approach to auditors over company collapses

Senior management and board directors, and not just the auditors, need to take some of the blame for the string of corporate collapses in recent years, says audit review chief  

Sir Donald Brydon, chair of the independent review of the future of audit in the UK, has told the ICAEW Audit & Assurance Faculty Conference that auditors should not be saddled with the sole blame for recent audit failures and stressed that an overhaul of the fundamentals of the audit process and definition was essential if the UK was to achieve meaningful audit reform.

Brydon was critical of the tendency to entirely blame the auditors for company failures, stressing that it was important to present a balanced view of where the responsibility lay between auditors, audit committees and company boards.

‘In seeking to improve the impact and quality of audit, we must look not just to auditors, but to audit committees, Boards and management too,’ he said.

‘Many of the submissions [to the Brydon review] from auditors and their associations begin with pinning all primary responsibility on directors. There may be truth in this, but it would have shown more understanding of public perceptions of audit if their first step in this debate had been to discuss how they can make audit better.

‘I have said before that it is not auditors that cause companies to fail; that is the result of actions by directors.  And I am a little troubled by the current mood that reaches for a shotgun aimed at auditors every time there is a corporate problem. I am mindful that audit needs to be an attractive profession that attracts the brightest and best who can have confidence that good professional work will not be misdescribed at moments of stress.

I am a little troubled by the current mood that reaches for a shotgun aimed at auditors every time there is a corporate problem

In a wide-ranging speech, Brydon stressed that it was not his intention to ‘redesign Western capitalism’, adding that it was ‘important to note that many people and organisations have expressed to the Review their frustrations with what they see as, essentially, a narrow, backward looking and increasingly rules-obsessed approach to audit’.

‘The goal of providing assurance over the financial and economic standing of our major companies requires more than just the following of prescriptive standards and the completion of files.’ 

He said that one respondent to the Review ‘compared the audit to a high jump, in which auditors have little incentive to do more than the minimum required to “clear the bar”.  I repeat that there is a hunger for audit to be informative and not just evidencing compliance.’  

Brydon plans to report back to government on his recommendations by the end of December this year, after the 2,500 pages of 120 responses to the Future of Audit review have been assessed. He also confirmed that the consultation responses would be published in due course.

Obsession with gaps

Many respondents to the review were concerned with the 'expectation gap', but Brydon said that this was exaggerated and was detracting from the purpose of the Review.

‘For many, there is the expectation gap – a perceived mismatch between what audit actually is and what people think it is. For others, there is the delivery gap – in which audit is not seen as delivering what it is already meant to be doing,’ Brydon said. ‘And between those two points, I have been urged to consider various other kinds of gap, including the knowledge gap, the quality gap, the education gap and even the evolution gap.

 ‘I am not sure that this obsession with gaps gets us very far.  

‘I also have little patience with the rather tendentious point of view that everything would be OK if the media, Parliamentarians and the general public were simply better educated on what audit does, and what it does not do.  The challenge, and the opportunity to raise standards, is surely greater than that.  What is wanted is better audit.’

Audit quality

Brydon also hinted at his early thoughts on the outcome of the review, indicating that he would be looking for radical proposals to improve the quality of audit.

‘I see part of the aims of my Review as being both to consider how the quality of the existing audit product might be improved, and to explore whether and how audit should be defined in terms of its scope.  Above all, and here I will let slip a view, I want to consider how audit can become a more informative process and product whilst not losing its compliance aspect.’

Purpose of audit

Brydon also said it was ‘unhelpful’ to focus on the varying needs of different users of audits, rather than looking for a holistic solution to the current shortfalls in audit.

He said: ‘I think it is unhelpful to exaggerate the different perspectives on audit across various categories of user. In the words of another respondent to the Review, a former company director as it happens, the users of an audit are quite simply “all who rely on the company’s stability and financial well-being at least twelve months hence.” I would hope that we could all agree that is a good starting point.’

Giving an indication of the future direction of his thinking, Brydon concluded: ‘I am seeking for audit to become more informative and not just a compliance checking function, and one which helps to maintain and grow trust in business as a whole.’    

The Brydon Future of Audit review received 120 written responses, totalling 2,500 pages of comment, while over 100 meetings and roundtables were held around the UK to gather views.

By Sara White

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Comments

I was at the Conference today and must congratulate the ICAEW on organizing an excellent conference.

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