The practice of financial auditing has been under intense scrutiny over the last few years. Despite the introduction of mandatory firm rotation in 2012, concerns remain over the quality and effectiveness of audit.
Following a series of high-profile corporate failures, a number of reviews have been commissioned, covering every aspect of auditing. The third of those, led by Sir Donald Brydon, was commissioned to examine the quality and effectiveness of the UK audit discipline and identify opportunities to improve its impact, with the result published at the end of 2019.
With no timeline for legislation, there could be businesses that wait and see what happens. They might risk losing out on significant opportunities, something that could be realised with the right team in place. Yet with more than 60 recommendations, knowing where to start could well hold many businesses back. Here, Rania Bejjani, a Chartered Management Accountant and a Certified Internal Auditor, provides her five steps to incorporating the review recommendations into a business.
“Those organisations that do not have a culture and an internal commitment to good governance, to controls and to internal auditing practices, are going to find it harder than those where these are embedded into the business. That doesn’t mean all is lost, or that they should just wait for legislation to come in. They can still achieve much and seize the opportunities good practices can deliver. To start with, they need to do a risk assessment to know what their controls, governance and assurance processes currently look like, then review relevant procedures.”
“That assess and review process will flag up gaps in policies, procedures, internal controls and internal assurance practices that need to be addressed. Since businesses are in the midst of major turmoil due to the pandemic, it’s simply not feasible for businesses to address every problem, and that’s the same with internal controls, internal audit as it is for marketing or sales or tax. The only thing worse than doing the wrong thing is doing nothing at all, so businesses need to prioritise what they’re going to address in order to avoid paralysis.”
“Once priorities have been set, businesses would move to action their decisions above. It doesn’t matter that we’re still waiting on a legislation timeline, or if there will be one at all. These recommendations now offer significant opportunities for businesses to improve their governance, controls and flow of information within their operations at a time when everyone is looking to transform their processes. Acting now means having the people in place to plug those gaps and get fit-for-purpose internal controls, audit processes and other assurance practices in place.”
“What do those people look like? They’re experienced, they master the skill of assessing businesses and identifying risks and advising on controls. They will have an audit or internal controls background, preferably with Sarbanes-Oxley, and they will be able to see the big picture and connect the dots. A response to the most comprehensive review of the UK’s audit discipline needs to be peopled by knowledgeable auditors and control professionalss who combine the science and art of auditing together.”
“There may not be a clear timeline or indication on the Government’s appetite for legislation, but smart businesses will be looking at what they can realistically achieve, how recommendations fit with their current practices and take steps to incorporate them. Do that, and they’ll have less time and cost pressures, and will also be in a stronger position to lobby government and regulators if and when legislation is on the table.”
The points in the Brydon report will not all be relevant, but for businesses committed to good governance, transparency and building the right culture, there is significant value in considering how they might incorporate the recommendations.