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Mind the Gap - Review of Auditing Standards

By Jo Parker

As accountants we’ve had to adapt to a fair bit of change recently, with new UK GAAP, updated money laundering regulations and GDPR to name just a few, and there is the spectre of Making Tax Digital fast approaching on the horizon.   I know from my visits to different firms that these changes and the general increase in regulation and documentation needs can be frustrating and lead some practitioners to wonder whether it’s time to retire.

Many of those firms have seen their number of audit clients dwindle over recent years too, largely due to the increase in size limits for a small company, and some have decided to withdraw from offering that service.  There seem to be two, probably not interrelated, causes for this – the lack of staff motivated to get involved in auditing and the need to document so much “stuff” to comply with International Standards on Auditing (ISAs), meaning that clients don’t want to pay a realistic fee to cover the work required.

As an old auditor who loved it, I think it’s very sad that staff don’t want to get involved in audit but I do understand the frustration of the documentation situation.  It is of course the most frequent review finding we raise when reviewing files – we all know you understand your clients and their risks but you haven’t documented it fully.

Well, there’s another change on the horizon I’m afraid, but this may not be all bad news and it’s not immediate.  The Monitoring Group thinks that it’s about time for a review of the auditing standards.  There are growing concerns in some quarters that the auditing standards have been developed by, shock horror, auditors and that they fail to take fully into account what is important to users of the accounts (including regulators).  We’re all familiar with the “expectation gap” inherent in audit – we see it writ large every time there is a corporate failure/fraud and the public/press howl about what is the point of an audit.  The man on the Clapham omnibus thinks an audit is something it is not (a fraud detection exercise; giving absolute assurances) and that is a problem the Monitoring Group want to help solve by bringing users of accounts into the standard setting regime to better address the public interest aspect of audit. The current “closed shop” of auditors developing their own standards is not good for public perception so the process would become more open.

Before you throw your hands up in horror, there is also an acceptance that the current standards, with a one-size fits all approach to audits, may not be appropriate to all companies and that having such prescriptive standards for small, low risk (owner managed) companies is too burdensome on firms looking to provide audit services. This has been the subject of consultation thus far, with ICAEW and ACCA collating responses from their members on the proposed change in the standard setting process but it is something to watch out for in the future.  In the meantime, keep calm and carry on auditing – it can be great!

 

June 2018 

 

Disclaimer
This article is published with the understanding that SWAT UK Limited is not engaged in rendering legal or professional services. The material contained in this article neither purports, nor is intended to be, advice on any particular matter. This article is an aid and cannot be expected to replace professional judgment. SWAT UK accepts no responsibility or liability to any person in respect of anything done or omitted to be done by any such person in reliance, whether sole or partial, upon the whole or any part of the contents of this article.