The Financial Reporting Council's study into ways of promoting audit quality has been released after its initial discussion paper, published in November 2006.
The paper, which covered the main drivers of audit quality and the threats to them, noted that a number of audit firms felt that some of the threats identified are theoretical.
Some of the highlights include the profession's cautioning of the FRC to not take action unless there is clear evidence that any particular threat is likely in practice to affect UK audits adversely.
The firms are concerned that such actions could have unintended detrimental consequences for the auditing profession. PwC, for example says: 'We do not believe that the case for additional or extended audit regulation or related initiatives has been made'.
Firms also cautioned against an increase in audit regulation, saying that any action taken by the FRC that increases audit regulation should be focussed only on the key issues, subject to cost: benefit evaluation; and proportionate in terms of its impact on smaller audits and public sector audits.
The FRC said it recognised that these criteria should guide any action it and its Operating Boards may take, always recognising that it may be bound to comply with external requirements, such as the requirements of EC directives and other regulation.
The FRC also said it will not be proposing any additional regulation as a result of the issues raised. However, a number of audit firms believe that ‘regulatory creep’ is threatening the culture they have developed to support audit quality.
They believe that this manifests itself in a number of ways including pressure on firms to meet changing requirements that involve more work without a corresponding increase in fees; monitoring by the AIU leading to a more compliance based approach to auditing; new standards that are increasingly complex and rules-based, thereby directing attention away from principles; and the rate of change, and the consequential need for training, causing difficulties.
In responding to company and investor concerns – as raised in the FRC's paper - about the way in which audit fieldwork is undertaken, by 'relatively inexperienced staff', the firms maintained they had high standards of training and methodologies, which were supervised by experienced senior staff and partners.
Sixteen respondents comment on whether a fundamental review of technical
training
requirements is required, with 12 disagreeing that there is a need for a
fundamental review, whilst four agree that such a review would strengthen
confidence in audit.
The professional bodies also disagreed that a review is required.
Further reading:
Corporates shun investor audit demands
Individual responses to FRC's study on Promoting Audit Quality
