The value of audit
The audit market for listed companies dominated by the Big Four accountancy firms – Deloitte, KPMG, PwC and EY – is not working as hoped. Auditors from across the major firms have been grilled by politicians and reform is inevitable. Many in the profession, like our own chairman Clive Stevens, have also been asked for their thoughts on the way forward at a recent Parliamentary committee.
But, says Peter Manser, our Partner and Head of Audit and Assurance, to focus the whole debate on the future of audit through the lens of large, listed, multi-national companies is misguided. The annual audit is more than a statutory obligation for privately owned and managed businesses, which are the engines of the UK economy.
The collapse of Carillion, closely followed by Patisserie Valerie, following a clean bill of health by their auditors once again raised the question over the role and future of audit. Is it the role of an auditor to flag problems and potential corporate failures, and is there an inherent conflict of interest given the lucrative consultancy work the Big Four mop up?
Reform of the audit market for very large businesses is undoubtedly needed and whilst we do not have all of answers, we would argue that shared audits – where an audit is shared by one of the Big Four and another firm – might be one solution.
The value of audit for growing businesses
But there is more to the audit market than those at the top of the tree. There are many thousands of businesses, charities and not for profit organisations where audit plays a critical role in good financial management. Privately owned and managed businesses do not see audit purely as a statutory obligation.
A good auditor will use the annual audit as an opportunity to talk to their clients about the challenges and opportunities facing that business. For many business owners, it is time to take stock, think and prepare for the financial year ahead. Audit is as much about looking forward as it is about the past year’s numbers.
And whilst auditors at the Big Four face the charges of failing to spot and report on possible corporate short-comings or outright failure, it is a very different picture with privately owned and managed businesses.
Auditors are much closer to their clients – the trusted adviser – and will in most cases flag concerns and raise difficult questions. They will also work through any problems with their clients. We want our clients to be successful.
But there is undeniably scope for improvement.
Audit is increasingly referred to by some as a commodity service, which implies it is of limited value. That is far from truth. A recent client survey*, of which we were a part, showed that one quarter of growing companies saw audit as valuable in providing confidence to investors/owners of a business. A further 33% saw it as enabling business advisers to provide better advice and support.
As a profession we need to better extol the benefits of audit and the role it plays. Auditors need also to be more inquisitive and ask difficult questions.
The Government is conducting a detailed review of the role of audit. Kreston Reeves will continue to contribute further to this debate, representing the views of owner-managed businesses who welcome and benefit from an audit.
For further information please speak with your usual Kreston Reeves adviser, or Peter Manser here or on +44 (0)330 124 1399.
Register to attend our ‘Financial reporting and the future of audit’ webinar
On Thursday 16 May we will be hosting a ‘Financial reporting and the future of audit’ webinar to supplement our popular Finance Focus events. The webinar is designed for those requiring a more in-depth update on financial reporting and compliance issues.
Details will be advertised shortly, in the meantime you can register your interest to attend by emailing firstname.lastname@example.org.
*Association of Practicing Accountants (APA) Q1 2019 Client Research
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