By John Davies, head of technical, ACCA
The content of last night’s Lords debate shouldn’t really come as a surprise to anyone who’s been following the audit debate in the UK closely: the Lords’ Economic Affairs Committee members stuck to their positions and the minister stuck to the Government’s position. The Lords might be concerned that the Government haven’t fully supported their criticisms of the UK’s audit market, but really the Government has steered a very reasonable course.
The Government may have been more cautious than the lords on the dialogue between auditors and regulators, and they have disagreed with the lords over International Financial Reporting Standards (IFRS), but it can hardly be accused of sitting on the fence or not taking the issue seriously when it has referred the audit market to the Office of Fair Trading, which has consequently passed the matter to the Competition Commission.
We agree with the government that IFRS did not encourage or result in a loss of prudence in accounting before the financial crisis, and we support the government’s position that there shouldn’t be a ban on the provision of non-audit services to clients by their auditors. We don’t agree with the government or lords’ position that there should be a further reduction in the audit requirement for small businesses. We would urge the Government to reserve the right to legislate to achieve greater auditor-regulator dialogue, something the department of Business, Innovation, and Skills wasn’t keen on in their original response to the lords’ report.
The problem here though, and the problem for the audit debate in the UK, is that action all depends on what happens in Brussels. The proposals from Brussels are far from finalised and the Government has wisely decided that waiting for a final decision from Brussels before making its own move is the best course of action.
ACCA has been fully engaged with the audit debate at both UK and EU level and will continue to make the case that audit is key to both re-establishing trust and market confidence and to contributing to investor protection because it provides easily accessible, cost-effective and trustworthy information about the financial statements of companies.