Practitioners, academics and students met to discuss the future of audit.
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.
Co-hosted with the Institute of Chartered Accountants in England and Wales (ICAEW), our event aimed to give the North West business and academic community the opportunity to feedback to the UK government on proposed reforms to the industry.
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.”
Audit is important not just for auditors but for the economy as a whole. Auditors should be a critical friend.
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 this 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.”
Finance for Non-Financial Leaders
Demystify the world of corporate finance and learn to use facts and figures to your advantage.
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.
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 ICAEW Manchester for setting this initiative in motion and look forward to similarly successful events in the future.”
"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."
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 Chris 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 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.