The UK is living through an unprecedented downturn in economic activity as a result of Covid-19, combined with enormous change and uncertainty and the impact of leaving the European Union. Auditing plays a vital role in establishing trust in the economy and wider society. Its importance is never greater than in times, like the present, when the risk of businesses failing and of fraud are at their highest.
The importance of auditing
Without high quality auditing, individuals and businesses may suffer at the hands of unrealistically optimistic views of business performance or, worse, instances may occur where fraud is allowed to go unchecked. The likelihood and consequences of such problems are exacerbated during this time of major change and uncertainty in business and society.
The current state of the market
Three major independent reviews have highlighted the extent of problems in the audit market especially in relation to the audit of FTSE350 companies. In their own words this is how the three reports see the challenges:
The CMA says:
“Cases like Carillion or BHS show the size of the stakes when there is a high-profile failure; the regulator’s quality reviews have revealed that shortcomings are widespread in the UK audit market”.
Sir John Kingman says:
“… having spent most of its institutional life largely in obscurity, the FRC now finds itself subject to tough and persistent criticism…. What this spotlight has revealed is an institution constructed in a different era – a rather ramshackle house, cobbled together with all sorts of extensions over time. The house is – just – serviceable, up to a point, but it leaks and creaks, sometimes badly. The inhabitants of the house have sought to patch and mend. But in the end, the house is built on weak foundations. It is time to build a new house”.
Sir Donald Brydon says:
“Some consider that audit is good enough but the starting place of this Report is that it is not... There needs to be a fundamental shift in definition and approach to ensure that all appropriate opportunities are taken for the auditor to inform as well as to confirm and verify. This will mean sometimes going beyond the information contained in the statements of the directors. With this change in mindset, and appropriate structures and principles, combined with more focused training and better user engagement, I consider that audit can serve a much more useful purpose. ‘
Mazars is calling for:
· Greater competition, choice and market resilience
· The implementation of the CMA’s thorough and independent package of recommendations
· The establishment of a new, improvement-led regulator as recommended by Sir John Kingman
· No further delay to creating a world-class audit sector
Please download our roadmap to a sector which meets the need of society below: