What pending audit reforms mean for you and your auditor

In March, the UK’s Department for Business, Energy and Industrial Strategy (BEIS) published a consultation white paper on audit reform, Restoring trust in audit and corporate governance. The government’s proposed reforms will impose weightier responsibilities on auditors, with the aim of improving overall audit quality. The consultation period ended on 8 July.

The paper incorporated many of the recommendations from recent reports, such as the Kingman Review’s proposals for a new regulator, the Audit, Reporting and Governance Authority. Sir John Kingman also advocated “a duty of alert: a duty for auditors of Public Interest Entities (PIEs) to report viability or other concerns to the regulator”. PIEs are organisations that are “of significant public relevance” because of their size or the nature of their business, and whose collapse can cause major socioeconomic fallout. This was true of Carillion, a textbook example of audit failure.

The government has adopted the Brydon review’s recommendation for “a new, distinct professional body for corporate auditors”, which will enable good practice to thrive. The aim is for all corporate auditors to have a core set of audit-specific skills and experience. These will reinforce their authority to provide appropriate challenge to company management, exercise professional scepticism, and look for “signs of over-optimism, judgmental bias or possible fraud”.

The Department for BEIS intends to impose equivalent duties on company directors, legislating “to require directors of PIEs to report on the steps they have taken to prevent and detect material fraud”. Confirmation plays a pivotal role in this space. We provide a digital platform for auditors to verify a company’s financial statements – they can quickly initiate requests and receive responses from validated institutions and authorised responders, such as banks and law firms. This eliminates the opportunities for fraud presented by paper, fax or email communications.

The evolving relationships between auditors, clients and service providers

As a result of these reforms, the relationship between you and your auditor will change, creating mutual obligations to work cooperatively in the public interest. Auditors need to be "objective and provide findings and opinions unaffected by bias, prejudice, compromise and personal or corporate conflicts of interest". Companies, especially larger corporations, are required to act more sustainably and make their own financial reporting more transparent. This will empower investors, creditors and other stakeholders by giving them access to reliable and meaningful information on company performance.

However, companies – their CFOs in particular – need to bear in mind that the confirmation process involves extremely sensitive and confidential data, such as bank account numbers, loan numbers and bank balances. In this context, Confirmation supports the highest level of security for all parties, providing reliable audit evidence that is maintained in a secure environment with end-to-end encryption. This enables auditors to reach sound and verifiable conclusions on the basis of “audit procedures performed and relevant audit evidence obtained”, as the International Standard on Auditing (UK) demands.

The experience of COVID-19 has intensified the speed of change, both in the use of technology and in working practices. It has prompted many organisations to rethink their traditional models and rely even more on technology in their strategic thinking. As Confirmation’s Kyle Gibbons explained in a recent ICAEW webinar, Quality audits and the beginnings of a new audit era, companies and their auditors need to develop close working relationships with tech service providers. They should be asking themselves: “is the provider managing data robustly and ethically? Which providers am I going to work with, and will they give me better audit quality outcomes?”

Later in the same webinar, the panel emphasised the importance of the BEIS consultation. They saw it as a perfect opportunity for all those involved in the audit profession - auditors, clients, third parties, and service providers - to steer the reforms in positive and forward-thinking ways.

For more information on how Confirmation can streamline and digitise your audit, contact us today.

Confirmation pioneered the idea of digital confirmations in 2000 and still leads the industry today. More than 16,000 audit firms, 4,000 banks and departments, and 5,000 law firms have put our platform to work. We span 170 countries and process more than one trillion dollars in confirmations each year.