Aidan Lambe: Auditors can't be blamed for crash
IN a recent article, economist Stephen Kinsella questioned the role of audit and conduct of auditors in the financial crisis, and the lack of public scrutiny to date.
Confidence in statutory audit has been damaged – this has already been acknowledged by the profession itself, regulators and policy-makers. But change is afoot.
Auditors do not 'clear' any corporate entity as being 'models of good health'. An audit provides no assurance on business models, strategies or risk appetites.
The primary purpose of an audit is to provide a level of comfort on the accuracy and fairness of the financial numbers produced annually in accordance with accounting rules and legal requirements.
Depending on performance, those numbers will portray either a healthy or not so rosy position. Regardless of what they say, an auditor's responsibility is to report his or her opinion on whether the accounts give a true and fair view of financial performance.
So the audit is not some form of 'catch-all' assurance on an entity's operational or financial health. This was acknowledged by Professor Peter Nyberg in his report on the Irish financial crisis.
Prof Nyberg, however, raised questions about the role and scope of audit. Recent changes from the Financial Reporting Council will require mandatory audit tendering by listed entities.
Also, audit reports provided by auditors will soon have to contain much more company-specific information relating to the conduct of that audit assignment and the critical judgments exercised by the directors in preparing the accounts. Companies themselves will have to disclose more about their business model and risks.
At European level, further wide-ranging proposals on auditor regulation will be finalised shortly. These include measures that will require auditors of public interest entities to be regulated in a manner that is independent of the profession.
Chartered Accountants Ireland has been calling for independent regulation for some time.
Aidan Lambe is policy director at Chartered Accountants Ireland