UKSA and ShareSoc made a a joint response to the FRC Post Implementation Review of 2016 Ethical and Auditing Standards
The main points we made were:
- We welcome the FRC’s decision to hold a post-implementation review of the 2016 Ethical and Auditing standards.
- The audit profession and audits are in a state of crisis. The recent cases of Carillion, Conviviality, Patisserie Holdings, Flybe and Interserve make investors very worried as to whether they can trust accounts. It is not just the high profile cases. The FRC itself has rated 70% of audits as needing improvement. Yet this consultation from the FRC fails to recognise fully the terrible situation we are in.
- The review focuses on processes rather than outputs. Whilst we agree that ethics and culture are important, they must not be looked at in isolation. It is no good having great ethics, if the results are awful.
- The FRC states “In taking forward this Post Implementation Review, the FRC’s principal concern is that the standards used in the UK support the delivery of high-quality audit, by demonstrably independent auditors who act in the public interest.” The Big Four auditors are each a small part (c25%) of a larger multi-professional services firm. This questions the ability of the auditors to be independent, when most of their firm’s business is dependent on selling professional services assignments to executive management. For the same reason they do not act in the public interest but in the interests of management. The cultures needed for audit and professional services consultancy are different. This can only be achieved if these businesses are separated.
Our full response can be read by clicking here FRC Ethical and auditing standards – Post Implementation Review Final
Cliff Weight, Director, ShareSoc. 12 Feb 2019.