Great audit expectations

No audit sets out to conclude with total confidence that a set of financial statements are 100% free from any misstatement. To do so would belie the technological reality and scale of modern business; auditors would likely become a permanent fixture at client premises to review every single business transaction and audit would become an uneconomic exercise for all concerned.

Instead, auditors set out to form an opinion as to whether the accounts present a true and fair view and are not materially misstated.

The expectation gap refers to the difference between what the public and other financial statement users perceive auditors’ responsibilities to be and what auditors believe their responsibilities entail.

Recent negative media coverage of audit (for example, following the collapse of Carillion) has only served to highlight this gap. The most recent response came last week from the Audit Quality Forum (AQF), which is to conduct an independent review into how audit can better serve the public interest.

This will coincide with other reviews of the sector currently ongoing from the Competition and Markets Authority (dominance of the Big Four), the Kingman review (future of the Financial Reporting Council (FRC) and the FRC itself (‘developments in audit’ programme).

Audit undoubtedly serves a crucial purpose in modern business and will continue to do so in the future. We recognise the clear benefits it brings to our clients. However, auditing must continue to evolve and improve, not only in how it is performed but also in its communication and engagement with all stakeholders.