BIZweek n°354 6 aoû 2021
BIZweek n°354 6 aoû 2021
  • Prix facial : gratuit

  • Parution : n°354 de 6 aoû 2021

  • Périodicité : hebdomadaire

  • Editeur : Capital Publications Ltd

  • Format : (260 x 370) mm

  • Nombre de pages : 10

  • Taille du fichier PDF : 3,5 Mo

  • Dans ce numéro : les réformes du secteur de l'audit sont nécessaires maintenant.

  • Prix de vente (PDF) : gratuit

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VENDREDI 06 AOÛT 2021 | BIZWEEK | ÉDITION 354 LA TOUR THE TRUTH TELLERS Why we need profound audit sector reform now Auditors should be the gatekeepers helping to keep such financial mismanagement at bay, yet too often they are failing to do so. The UK government has recognised this and begun to consider reforms. But three years after Carillion crash, no significant policy action has been taken. There is a real risk that unambitious reform leaves some of the central problems unaddressed and that the costs for society will continue to occur year after year, says a recent report by the Institute for Public Policy Research (IPPR), UK’s leading progressive think tank In 2017, seemingly out of the blue, the construction giant Carillion collapsed. Until just before its failure it had booked significant profits, paid out sizeable dividends to shareholders and was employing 43,000 people. What happened? The Institute for Public Policy Research (IPPR) highlights, in a recent report, that dramas like this one are playing out in smaller forms in other UK businesses every year. This leaves the UK economy with significant costs. Bad governance and poor management with too little accountability in businesses is at the heart of this problem (BEIS 2021). Audit exists to help establish the truth about business finances. It should help demonstrate, to a wide range of parties, whether businesses are run sustainably. This includes checking the financial accounts and ensuring businesses truthfully and transparently report how they are run. As such, auditors are supposed to be the ‘referees’ of corporate Britain. A well-functioning audit sector should be expected to flag problematic accounting practices and risky business activities to inside and outside stakeholders before they turn into damaging debacles. However, the current legal set up does not require this from auditors. It too often is to akin to a ‘tick box exercise’. Auditors, in turn, do not regard it as in their remit. In the case of Carillion, better functioning audit could have raised red flags for investors, clients and regulators potentially years earlier. These stakeholders could in turn have pushed Carillion’s directors out and replaced them with a more responsible team. This might have saved the company, avoided investments being wasted, preserved jobs and ensured contracts were fulfilled. In other cases, too, like that of the drinks retailer and whole seller Conviviality, auditors might have helped investors make more informed decisions about its breakneck expansion, and its finance and business plans – which were ultimately unviable. High quality auditing will of course not prevent all, or even most, business failures, and nor should it. But it is essential in ensuring markets and wider stakeholders have the information they need to make an informed judgement. While providing significant win-win opportunities for business and society, the audit industry is currently failing to deliver on its role as trusted referee. While UK auditors were closer to their role in the first half of the 20th century, the audit sector now seems to have lost its way, with one in three audits found to be problematic (FRC 2020a, Brooks 2018). Rather than meticulously monitoring on behalf of society and to the benefit of the economy, many audits today are not living up to expectations. The Competition and Markets Authority (2019) found that: “Many stakeholders – including audit firms – accepted that recent instances of high profile corporate failures have exposed serious concerns around audit quality and diminished trust in the audited financial statements of large companies overall.” When audit fails When audit fails, it means there are insufficient checks to establish trust in firms’ finances, sometimes giving a pass to outright fraud but more often to more subtle, but damaging, forms of accounting. This is partly due to not doing enough to challenge the businesses they audit, and partly due to them seeing certain tasks as ‘beyond their brief ’. As a result, there is almost unanimous agreement that audit firms are failing to live up to society’s expectations and needs. When audit fails, rather than flagging 3 Cont’d on page 4

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