MyCIMA

Audit Enquiry

Posted: Friday 10 September 2010 by Nick Topazio
Replies : 4
Keywords: audit, Auditors, Big 4

CIMA CEO Charles Tilley has been invited to give oral evidence to the House of Lords Economic Affairs Committee - Inquiry into auditors: market concentration and their role.  The Committee is considering what impact the dominance of the Big Four has on competitiveness, audit quality and auditor independence.  It is also enquiring whether auditors could have mitigated the banking crisis of 2008 by alerting investors to the riskiness of assets held by banks. 

Charles will be appearing before the Committee on 19 October.  His participation ensures that the committee gains insight from accountants as consumers rather than providers of audit services. 

The inquiry will seek to answer questions such as:

  • 1) Why did auditing become so concentrated on four global firms? For example, do economies of scale make it too difficult for smaller firms to compete?
  • 2) Does a lack of competition mean clients are charged excessive fees?
  • 3) Does a narrow field of competition affect objectivity of advice provided?
  • 4) Alternatively, does limited competition make it easier for auditors to provide unwelcome advice to clients who have relatively few choices as there is less scope to take their business elsewhere?
  • 5) What is the role of auditors and should it be changed?
  • 6) Were auditors sufficiently sceptical when auditing banks in the run-up to the financial crisis of 2008? If not, was the lack of competition in auditing a contributory factor?
  • 7) What, if anything, could auditors have done to mitigate the banking crisis? How can auditors contribute to better supervision of banks?
  • 8) How much information should bank auditors share with the supervisory authorities and vice versa?
  • 9) If need be, how could incentives to provide objective and, in some cases unwelcome, advice to clients be strengthened?
  • 10) Do conflicts of interest arise between audit and consultancy roles? If so, how should they be avoided or mitigated?
  • 11) Should more competition be introduced into auditing? If so, how?
  • 12) Should the role of internal auditors be enhanced and how should they interact with external auditors?
  • 13) Should the role of audit committees be enhanced?
  • 14) Is the auditing profession well placed to promote improvement in corporate governance?

If you have any thoughts on the above questions then we would be pleased to hear your views here.

AttachmentSize
CIMA to HoL re Audit Market Concentration - Full Final.pdf143.67 KB

Secrecy?

Posted by Cliff Moggs on Saturday 11 September 2010 13:20
Why is it, that whereas the BOD are responsible for presenting the 'financial statements' to the Auditors to audit, there is basiccally only an 'unqualified opinion' expressed? If the Auditor disagreed with the accounts and the BOD concurred and changed the accounts, this is not reported - secrecy. Would the overall picture be better or worse if there where the 'Big 8'? Let me also assume that the 'auditor's' were not sceptical of the Banks Accounts, how would you enforce 'scepticism'? ISQC 1 refers to the 'quality review sign-off' but this is never published - secrecy. Best regards Clif Moggs (Happy to continue off-line)

One recommendation

Posted by Cliff Moggs on Tuesday 14 September 2010 19:09
One straightforward change is to append to the ‘audit opinion’ the authorisation (IFAC-ISQC 1 paragraph 61) for its release by naming the ‘EQCR’ who confirms that the management system finds the work performed has established through written evidence the conclusion of the opinion, unqualified or qualified. As an appendix to the audit opinion it can amplify that the EQCR (individual’s name) has concurred with the opinion. It agrees that the audit criteria and subsequent written evidence gathered from the audit leads to the conclusion and that other auditors would have come to the same conclusion, the opinion is sound. The extent of the scepticism adopted by the entities management has not only be ‘judged’ by the EP but also ratified by the EQCR has being valid. The issue of ‘scepticism’ is covered in paragraph 65, “Judgments made, particularly with respect to materiality and significant risks” and “Whether working papers selected for review reflect the work performed in relation to the significant judgments and support the conclusion reached”. Paragraph 67 addresses, if there is ‘disagreement’ between the EP and the EQCR that the final process has followed the firm’s procedure for dealing with differences of opinion. As Chartered Management Accountants an entities financial statements will have been prepared with integrity, compliant in all aspects and maintaining the hallmark in the publics interest. Openness to the critical review of the audit by the Engagement Quality Control Reviewer, a person eligible for this responsibility, provides transparency for this valuable public service. Yours sincerelyCliff Moggs

CIMA's Evidence

Posted by Nick Topazio on Thursday 25 November 2010 15:51

Appearing before the House of Lords Economic Affairs Committee, Charles's main messages were:

  • - Although the CIMA qualification does not include auditing, our members have an active interest in the effectiveness of audit as a consumer. CIMA members occupy senior positions in many of the UK's largest public and private organisations and have direct involvement in the selection of audit firms and the work of auditors.
  • - The focus of audit on the financial statements is unduly narrow and represents a missed opportunity. The front section of the annual report, the narrative operating and financial review (OFR) provides the critical, forward-looking contextual information which is essential to a proper understanding of the financial statements. It is important that consideration is given to some form of audit assurance that covers the process of generating the OFR.
  • - The main role of the board of an organisation is to deliver long-term success and it is the purpose of management information to equip boards effectively to make good decisions that further this role. Consideration should be given to an extension to the role of audit to specifically cover whether the information provided to boards is sufficient for the board to determine the business model and adequately assess associated risks.

A copy of the complete CIMA evidence to the Committee is now attached to the original post

Rolling five year results

Posted by Cliff Moggs on Thursday 02 December 2010 22:57

Track managements statements from the past periods. These are the accounts, look upon them as pictures. Will the words chnge the facts. ANy forward look is a forecast, equally wrong or right, what has been achieved. Salaries etc. are not paid out of forecasts but from results.

Best regards Cliff Moggs