32% of audit chairs ‘doubt’ auditors’ financial distress detection

The Centre for Public Interest Audit (CPIA), a new research and policy institute dedicated to shaping best practice and informing the future of public interest entity (PIE) audit in the UK, has found that 32% of audit committee chairs, 21% of investors, and 16% of finance directors express concerns about auditors’ ability to identify signs of financial distress or going concern issues.

The Audit Trust Index measures and tracks perceptions of audit trust, while also identifying emerging trends and challenges the profession is currently facing. 

The research is based on an independent poll of 100 UK equity investors and 101 FTSE 350 finance directors, and a survey of 35 audit committee chairs, conducted by the CPIA. 

Other key findings include:

• A strong majority of audit committee chairs (94%) are satisfied with the quality of the audit process, along with 86% of finance directors and 77% of investors 
• 97% of audit committee chairs and 94% of finance directors are confident that auditors are maintaining their independence and objectivity, compared to 85% of investors
  
  
• While a majority of stakeholders recognise the value of external audits, 22% of audit committee chairs expressed some level of dissatisfaction, compared to only 6% of investors and 2% of finance directors. Additionally, a significant portion of investors (20%) expressed neutral views on audit value
  
  
• Just over half (54%) of investors find public audit reports clear and informative compared to 31% of audit committee chairs 

  Baroness Ford, chair of the CPIA, said: “The overall high satisfaction levels with audit quality and value are encouraging. However, it is concerning that there remains a lack of confidence – amongst audit committee chairs – in the auditor’s ability to identify signs of financial distress. This highlights a critical area which the CPIA is focusing on in our research, including how directors and auditors can provide better visibility on corporate health indicators.“As a next step, we will bring together audit committee chairs, alongside other key stakeholders from across the FTSE 350, to better understand these concerns and determine how we can take collective targeted action to strengthen confidence and achieve better outcomes in this area.”