Chartered Accountants Ireland responds to the UK Brydon Review on audit

Jul 11, 2019

Enhancing viability reporting, directors’ responsibilities and communications critical to addressing the audit expectations gap

Chartered Accountants Ireland has submitted its response to the Independent Review into the Quality and Effectiveness of Audit being conducted in the UK by Sir Donald Brydon (‘the Brydon Review’).  The Brydon Review aims to:

“…examine the existing purpose, scope and quality of statutory audit in the UK, in order to determine:

  1. the needs and expectations of users of financial and non-financial corporate reporting;
  2. how far the audit process and product may need to improve and evolve to meet the needs of users and to serve the wider public interest;
  3. what specific changes to the statutory audit model and wider regulatory framework for audit may be needed to deliver this, including any changes to company law;
  4. whether other forms of business assurance should be developed or enhanced to enable shareholders to assess better the future financial prospects and sustainability of companies.”

In preparing its response, Chartered Accountants Ireland conducted discussions with auditors, finance directors and audit committee chairs.  In the response, viability statements/assessments are identified as the area with the greatest potential to address the ‘audit expectations gap’.  The response states “[Chartered Accountants Ireland believes] that there is considerable potential to enhance company reporting on the viability assessments carried out by the directors, that audit committees should be more involved in reviewing and reporting on their review of the director’s assessment, and that a framework could be put in place to support the auditor giving enhanced assurance on the company’s process in undertaking the viability assessment by way of public reporting.  This may involve a form of reporting on the assessment of the key assumptions underpinning the viability assessment and views on the degree of risks inherent in the company’s circumstances”.

The response also identifies enhancements in directors’ responsibilities and clear communication of the respective responsibilities of management, directors and auditors as further critical factors to the success of the review in narrowing the expectations gap to a manageable level.

Commenting on the submission, Chartered Accountants Ireland President, Mr Conall O’Halloran said:

“Chartered Accountants Ireland welcomes the Brydon Review.  We consider that audit quality must be the priority of any review into the audit sector and audit quality is certainly at the forefront of this review.  There is clear evidence to show that the capital markets value the contribution of independent statutory audit to the functioning of the system.  It is therefore incumbent on all relevant stakeholders to make best efforts to develop proposals that protect and enhance that value.  Our response identifies some progressive initiatives targeted specifically at what we believe are the key drivers of the audit expectations gap.  There is no “quick fix” to this issue and to develop detailed proposals to bring forward these initiatives will take a lot of engagement, hard work and cooperation between companies, auditors, investors, regulators and other key stakeholders.  Chartered Accountants Ireland is ready and willing to participate in efforts to develop such detailed proposals and, as a first step, has invited Sir Donald Brydon to meet to discuss the review and our response.”