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ICAEW attacks FRC reforms

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25th Sep 2012
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The ICAEW has broken with its tradition of quiet diplomacy to attack recent reforms at the Financial Reporting Council, which it says could undermine the profession’s disciplinary processes.

ICAEW executive director Vernon Soare warned this week that the FRC’s suggestion to remove the requirement to consult recognised supervisory bodies on disciplinary matters would remove an important element of accountability.

“It is important that the professional bodies continue to play a role in the preliminary investigation of complaints which may lead to cases being taken by the FRC, as this can both add value to the process and lead to a more informed decision,” Soare said.

“Without a formal requirement for the FRC’s new Conduct Committee to obtain consent on  changes to the  Accountancy Disciplinary Scheme or consult with the professional bodies concerning preliminary investigations, there is a danger that decisions on disciplinary matters will be taken by the FRC in isolation.”

In July oversight of disciplinary matters was shifted from the Accountancy and Actuarial Discipline Board (AADB) to the FRC’s new Conduct Committee as part of a wider restructuring of the FRC. The Conduct Committee combines the previously separate roles of the former Professional Oversight Board, the AADB, the Independent Convenor and Executive Counsel.

The institute’s response (PDF) to the FRC’s June consultation paper highlighted general concerns about the reformed council’s ultimate accountability and raises numerous arguments against freezing the professional bodies out of the disciplinary process.

“We have no wish to hamper the FRC in the speedy and effective operation of the Scheme generally and the investigation and resolution of individual cases. Nevertheless we consider that the FRC’s proposals here are not sufficiently evidenced. Proposals to remove or restrict the involvement of the professional bodies in certain respects must be based on clear evidence that that involvement actively limits and restricts the effective operation of the scheme. No such evidence is provided,” the ICAEW argued.

The FRC’s new disciplinary regime isn’t the only element of the restructuring to come under fire. With a Competition Commission probe underway into concentration in the audit market, the financial regulator has already signalled its enthusiasm to embrace reforms put forward in Europe to require tendering for corporate audits every 10 years. While the objective of the proposals is to achieve greater transparency in the wake of the global financial crisis, leading audit firms are concerned that they could lead to less protection for investors and the public.

A survey conducted by accounts production software house CaseWare highlighted fears that incoming auditors would have less experience and knowledge about the company.

“In such cases it could take several years to replicate the understanding that was in place prior to the rotation. This could well lead to investors and the public being less protected,” said Shez Hamill from CaseWare.

AccountingWEB’s financial reporting expert Steve Collings agreed that there was a “knee-jerk” element to the FRC plans, adding that the auditing profession always ended up in the firing line when things go wrong.

“There is always criticism that auditors are not independent enough, or their objectivity is impaired, but there are safeguards that firms can apply to protect independence and objectivity and the larger firms, especially, would have these safeguards available to them. 

“I am not convinced that breaking up Big Four domination will prevent another financial crisis and without a proper programme of researched and balanced views, I suspect in reality it would be difficult to implement in the short-term,” he said.

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By reilloc
26th Sep 2012 14:54

Audit
If the audit profession wants to restore public and political confidence in the profession they need to embrace reforms that are far deeper and wide-ranging than those discussed here! Ten year tendering of audit will do nothing to remove the perception that audit companies are far to close and cosy in their relationships to the big companies that they audit.
Many years ago I worked for a company that performed Assurance on designs for plant at Sellafield. We would bend over backwards to avoid stating that buildings had safety issues. why? Because bnfl paid for our services and would stop using us if we stirred things up.
As far as I can seen the same situation applies to audit work.
To restore public confidence, I think we need to randomly assign auditors to companies every three years. We need a fee structure that is fixed based on size, profit and company structure.

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Chris M
By mr. mischief
26th Sep 2012 17:11

the reek of the vested interest

All manner of really dodgy auditing has infected banks and other businesses in the last 5 years.  Now the great vested interest ICAEW gets irked that it's useless policing of the top guys is being challenged.

Strict Liability

As well as supporting the last post, I want to see strict liability.  If every fat cat audit partner knew that if the company entered serious difficulties within 12 months of a clean audit report, he or she would be deemed negligent with heavy penalties and possibly jail unless they could prove otherwise, there would be an explosion in qualified reports.  In turn, the dodgy directors would clean up their acts because they'd fear the qualified audit report.

In my career, plus those of fellow accountants I personally know, the profit impact of questionable audit reports is approximately

£30 Billion

In some cases, PLCs went bust within 12 months of a clean audit report.  £30 Billion from the immediate personal contacts of one accountant.  Ridiculous.

Crooks by another name.  Auditing is rotten to the core.  The guys from the 1850s who got the profession started will be spinning in their graves.

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By carnmores
27th Sep 2012 13:59

big companies

send out trainees paid £15-20 ph and mark them up to >£100 ph and ask them to fill out loads of forms, is it any wonder they dont know whats going on half the time

are some huge companies simply to big to audit

no cross selling

is tendering any good?

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