The Institute of Chartered Accountants of Scotland (ICAS) is calling for a three-step approach to overhauling the audit profession following proposals set out in the government’s audit reform consultation
The organisation’s corporate auditor report sets out a three-phase roadmap on how the UK could create a new corporate auditor profession. The report, A roadmap to the corporate auditor profession, takes the plans made by the ICAS working group established in 2020, which included senior members of the audit profession from large firms along with representatives from industry and academia, which looked at how to build the foundations of a new corporate auditor profession.
ICAS takes forward the recommendations made by Sir Donald Brydon in his December 2019 report which states that it should be an independent profession, with its own governing principles, qualifications, and standards. At present auditing is an extension of the accounting profession and is governed by the main accounting bodies.
The approach suggested by ICAS seeks to leverage and further enhance the architecture that the UK professional accountancy bodies already have in place, rather than establishing a separate professional body from the outset.
To achieve this, ICAS has set out a three-phase approach which it believes provides a clear roadmap to allow Brydon’s recommendation to be implemented, with phases one and two suggested to commence at the same time.
Phase one of the plan will concentrate on improving the current financial statement auditor regime and will focus on the current financial statements’ audits and suggest improvements that could be made to the existing framework to enhance audit quality and reputation of, and trust in, auditors of financial statements.
Phase two will provide assurance qualifications to non-financial statement auditors, this will focus on how to equip non-financial statement subject matter experts who wish to carry out assurance work with applicable skills in assurance and other related matters to allow them to undertake assurance engagements in their areas of knowledge.
With successful implementations of phase one and two, ICAS says that the next logical step would be phase three which will be the final establishment of a new corporate auditor professional body. This would be separate but will have close links to the accountancy profession and in time, ICAS added that this body would satisfy the necessary criteria and be recognised by Royal Charter.
ICAS is also a supporter of the ‘principles not rules’ notion put forward by Brydon and advocates for a list of seven core principles that the new corporate auditing profession should follow.
Some of these ideas include a requirement that wherever auditing and assurance applies it should be viewed as a specialist activity requiring high standards and skills consistently applied, that such skills should be acquired through a formal training programme provided by a recognised expert education establishment accompanied by appropriate practical experience and that all corporate auditors will be subject to appropriate ethical and independence requirements.
The UK government published the Restoring trust in audit and corporate governance: proposals on reforms consultation in March with proposals that would create a new, more powerful audit regulator, the Audit, Reporting and Governance Authority (ARGA), which will replace the Financial Reporting Council (FRC), and would have greater oversight. However, this body is unlikely to be created before 2023 and will require parliamentary legislation.
Another aim of the reforms is to dilute the dominance of the Big Four audit firms, PwC, Deloitte, EY and KPMG, which audit most FTSE 350 listed businesses, currently handling 97% of these listed audits.
The BEIS consultation closes for comment on 8 July 2021.