Major U.K. report: 'Audit has lost its way'

Creating audit-only firms and redefining the purpose of the audit itself are among the recommendations of a major new U.K. review of the auditing profession.

The 135-page Brydon Report, named after Sir Donald Brydon, the former London Stock Exchange chairman who led the review, was commissioned a year ago for the Financial Reporting Council, the U.K. financial services regulator, after a series of high-profile corporate failures, and earlier reports that questioned auditors’ competence.

Brydon calls for “urgent reform” of the audit field, including a coherent framework for the profession and “greater clarification about who audit is for.”

"There has been a slow evolution, since the 1970s, in the role of audit from being just a periodic external check on the accuracy of financial reporting towards a value-adding function, but this has further to go," the report says. "In hiding behind the need only to confirm and verify, many auditors have failed to grasp the opportunity to make their reports more informative. Many do take this opportunity in private, communicating well beyond the narrow confines of auditing standards when reporting to audit committees, but not to shareholders or other stakeholders."

"Audit is not broken but it has lost its way and all the actors in the audit process bear some measure of responsibility," it continues.

Among the report's specific recommendations:

• Splitting auditors and accountants into different firms;
• Creating a new training and certification regime specifically for auditors;
• Creating clear mandate to uncover fraud;
• Requirements for auditors to reveal more about their fees and profits;
• Expanding the “going concern” statement into a more far-reaching “resilience statement;” and,
• Allowing shareholders to ask questions of a company’s auditors at the annual meetings.