"Language matters." so begins the Sir Donald Brydon Review into UK Audit.
In parts touching on the philosophical, Brydon suggests:
"Audit is not broken but it has lost its way and all the actors in the audit process bear some measure of responsibility."
Recommendations:
• A redefinition of audit and its purpose
• The creation of a corporate auditing profession governed by principles
• The introduction of suspicion into the qualities of auditing
•The extension of the concept of auditing to areas beyond financial statements
• Mechanisms to encourage greater engagement of shareholders with audit and auditors
• A change to the language of the opinion given by auditors
• The introduction of a corporate Audit and Assurance Policy, a Resilience Statement and a Public Interest Statement
• Suggestions to BEIS' work on internal controls and clarity on capital maintenance • Greater clarity around the role of the audit committee;
• A package of measures around fraud detection and prevention • Improved auditor communication and transparency
• Obligations to acknowledge external signals of concern • Extension of audit to new areas including Alternative Performance Measures
• The increased use of technology
Brydon quoting Karthik Ramanna “I know of no better system than market capitalism to sustain liberty and create prosperity – and market capitalism cannot function without a robust audit function. If we do not save auditing, we cannot save capitalism.”
And on fund managers.... " I was also rather underwhelmed during the Review by the interest in audit shown by some of the portfolio managers with whom I spoke. Few appeared to read the audit report thoroughly and several took the view that it was enough to know whether or not the auditor had given an unmodified opinion."
I do note, I did not speak to Brydon but have tangential advisory interests through being on an advisory group for IASB and for FRC.
Review can be found here.