Proposed audit reforms not ‘game-changing’, say Manchester accountants

Accountancy leaders in Manchester have called on the government to focus on professionalism and “inject greater conceptual clarity” into its proposals for audit reform, warning that as it stands, the reforms would not be “game-changing”. 

In a joint letter sent to business minister Kevin Hollinrake, Rod Sellers OBE, president of ICAEW Manchester, and Chris Humphrey, professor of accounting at Alliance Manchester Business School (AMBS), said that proposed reforms would be unlikely to have the same “game-changing” impact as claimed by the former minister responsible for audit reform, Lord Callanan.

The letter summarised the views and responses from delegates at an event hosted by ICAEW Manchester and AMBS last autumn, which explored the future of the audit profession and its regulation. 

Delegates said they wanted the government and audit regulator to focus on professional innovation rather than “simply adding increased layers of regulation”. 

The letter highlighted that the government’s most recent White Paper on audit reform mentioned the word “regulator” more than 500 times but did not feature the term “professionalism” once.

Doubts were also expressed over both the nature and impact of the FRC inspection approach, including the way in which “associated publicity sometimes inappropriately names and shames individual auditors with resultant career-threatening consequences”.

There were also expressions of concern regarding the development of a “play safe” culture in audit, with it being noted that auditors were declining to audit companies perceived to be too risky.

Delegates also expressed some dissatisfaction with the definition of public interest entities (PIEs), the auditors of which are subject to enhanced regulatory supervision. They called for “a more nuanced, risk-based assessment to be adopted so as to avoid several mid-sized listed companies being inappropriately impacted by the new PIE regulations.”

The letter concluded by calling for greater conceptual clarity from the government and regulator. 

Sellers and Prof Humphrey told Hollinrake: “A prominent overarching emphasis in the discussions with delegates was that the government’s reform agenda needed a higher level of conceptual clarity and consistency.

“While the government has stressed the importance of a holistic approach to reform, this was not seen to be sufficiently evident in the overall reform package, with the resulting risk that a major opportunity for conceptual innovation and advancement in audit and the auditing profession will be lost.”