Politicians and regulators joined industry practitioners, academics and students at a special debate about the future of audit and the implications for the accounting profession held at AMBS.
The event, co-hosted with the Institute of Chartered Accountants in England and Wales (ICAEW), aimed to give the North West business and academic community the opportunity to feedback to the UK government on proposed reforms to the industry.
Following a number of high-profile corporate collapses, the government has undertaken a string of reviews into the audit sector to enhance audit quality, increase competition, reduce conflicts of interest, and improve regulatory oversight.
In response to more than 600 formal submissions, the government is now drafting a bill on reforming audit and corporate governance that, among other things, will lead to a new statutory regulator to be known as the Audit, Reporting and Governance Authority (ARGA).
As well as new primary legislation, the reforms will require secondary legislation, changes to existing regulatory measures, and market-driven measures for which the regulator will be responsible.
Lord Callanan, Under Secretary of State for Business, Energy and Corporate Responsibility, addressed the debate at AMBS via video link from London. He said that it was “vital” that our leading companies commanded the confidence of financial markets.
“We recognise that addressing trust demands action across the whole system. We plan to establish a stronger audit regulator to drive improvements in the quality of audit and it will have tougher enforcement powers. A strengthened regulator provides clarity for everyone in the system.”
He added that the reforms should be treated as something that will be rolled out gradually over time. “This process has been through a lot of iterations, but we are definitely proceeding with drawing up the legislation.”
Miranda Craig, Director of Strategy and Change at the Financial Reporting Council (FRC) – which recently produced its own position paper on restoring trust in audit and corporate governance - confirmed at the event that it was “looking towards 2024” for the launch of the new regulator.
Asked about how to ensure that the profession remains attractive, she emphasised that the FRC was doing a lot of work around the quality of audit qualifications. “We are ensuring that the profession is on a solid footing. It is also in our interests for the profession to be attractive and we have a vested interest that it is held to high standards.”
Julia Penny, President of the ICAEW, told the event that audit usually goes wrong if corporate governance goes wrong first. “Audit quality overall in the UK is of a very high standard but that doesn’t mean it can stand still, it has constantly to get better.
“Audit is important not just for auditors but for the economy as a whole. Auditors should be a critical friend. But without good corporate governance we get these disorderly failures and things that go wrong.”
She added that there was a lot that could be done without legislation, such as with the publication of a new corporate governance code next year. Meanwhile she stressed that audit needed to be attractive to the next generation. “It needs to move with the times. For instance, technology is increasingly affecting the industry.”
After the presentations there was a wider debate about how to enhance the attractiveness of auditing as a professional career, not just to potential trainees but also to encourage qualified accountants to remain in audit practice over the longer term rather than seeking, post-qualification career moves into industry or other professional and public services.
Consideration was also given to the respective responsibilities of auditors and directors, and the importance of regulators pursuing errant directors in cases of major corporate failure.
The audience also discussed the relative emphasis being placed on regulation and professionalism as drivers of innovation in the audit arena, including the need to consider how best to enhance the broader business and societal value of audit and overall standards of corporate governance.
In particular, concerns were expressed as to whether the government’s promotion of shared audits and growing commitments to split the audit and consulting functions of accountancy firms would prove to be the promised ‘game-changers’ capable of delivering long-lasting improvements in the effectiveness of audit.
Co-organiser Chris Humphrey, Professor of Accounting at AMBS, said: “This is the first of what is intended to become a regular debating forum addressing important public policy issues and initiatives impacting on accounting and finance in the Greater Manchester region.
“There is a dual need not just to give voice to, and gain insight from, the practical experiences of seasoned professionals, but to set such discussion in the context of leading academic research and educational initiatives. It was great to see such a range of interesting presentations, together with an ensuing lively discussion between panel members and guests. I would like to thank both Rod Sellars and Michael Colin at ICAEW Manchester for setting this initiative in motion and look forward to similarly successful events in the future.”
Rod Sellers, President of the ICAEW’s district society in Manchester, added that the joint initiative by AMBS and ICAEW Manchester had attracted an impressive audience of leading members of the North West financial community.
“The challenge now is to submit a summary to the Minister of the key points raised by attendees as it was apparent in the session that several important reservations exist on the potential improvements that are sought in the proposed legislation, as currently drafted.”
Future of audit
Academics from the Accounting and Finance division at AMBS have played a major role in the debate about the future of audit in recent years.
Professor Humphrey was appointed to the advisory board of the independent review into the quality and effectiveness of the UK audit market, led by Sir Donald Brydon. In conjunction with the ICAEW’s Audit Futures initiative, he has also done much to promote the case for thinking differently about auditing and audit reform.
Visiting Research Fellow at AMBS Dr Yasmine Chahed was also a member of the Brydon review team and has similarly promoted the importance of reviewing the core purpose of audit.
Professor Javed Siddiqui’s assessment of the extent to which the case for joint audits is supported by research evidence was cited by the International Federation of Accountants in one of its policy briefings. Similarly, his oral evidence in 2021 to the House of Commons’ Business, Energy and Industrial Strategy Committee’s figured prominently in justifying proposed corporate governance and auditing reforms made in its report on Liberty Steel and the future of the UK steel industry.
Professor Brendan O’Dwyer also recently guest edited a special issue of the European Accounting Review considering transformations in audit practice and the impact/contributions being made by auditing research.
Watch the full recording of the event on our YouTube channel.