Since the financial crisis of 2008, the role, relevance and purpose of the audit have been the subject of much debate.
Some have raised concerns about the value of the audit, particularly when some companies, especially banks, went bankrupt or needed public sector intervention shortly after a ‘clean audit’.
You can read more about some of the hot topics, and what is happening in each of these around the world today in the sections below.
You can also find our deep dive into the latest news on the new EU audit legislation.
Some regulators and other commentators believe that some auditors may have too close or cosy a relationship with their audit clients’ management reducing their independence, scepticism and objectivity and undermining the quality of the audit they produce and therefore its value to the financial markets and broader society.
Limiting the tenure of auditors is seen as one approach to addressing this. Equally, some regulators believe limiting tenure can be a remedy to concerns around high levels of concentration among the larger global accounting networks undertaking the audits of larger, listed, companies (especially in banking and financial services). Some countries also see it as a way to unlock wider economic growth by encouraging native accounting firms to grow through a more dynamic audit market.
A frequent response to such concerns has been the introduction of mandatory audit firm rotation (MFR) or tendering and or joint audit – either separately or in combination. The evidence that these approaches are effective is mixed and some countries have introduced alternative approaches.
Hear the views of investors, audit committee chairs, regulators and governance experts and PwC in the following videos.
Hear from Richard Sexton, Global Assurance Leader, Richard Oldfield, our Global Markets Leader, and Jan McCahey, our Global Public Policy Leader, as they set the scene for the debate and then discuss our views on tenure of the auditor, when it is appropriate to change, and who should decide.
In the following videos hear the views of investors (Pru Bennett from Blackrock and Rui Mota Guedes from Kepler Cheuvreux)), audit committee chairs (David Denison from Royal Bank of Canada), regulators (Brian Hunt from the Canadian Public Accountability Board) and governance experts (Professor Mervyn King Chair of the King Committee on Corporate Governance in South Africa).
In the first they give their views on rotation, arguing both for and against rotation as an effective solution to issues around auditor tenure and independence, and in the second, their views on approaches to enhanced governance including increased oversight of performance of the audit and the auditor by the audit committee.
Auditor independence: views of investors
Audit firm rotation: views of investors
We express our thanks for their contributions and participation in the debate to Brian Hunt (Chief Executive, Canadian Public Accountability Board), Pru Bennett (Director, Head of Investment Stewardship APAC, Blackrock), David Denison (Director, Chair of the Audit Committee, Royal Bank of Canada), Rui Mota Guedes (Head of Thematic Research, Kepler Cheuvreux) and Professor Mervyn King (Chair of the King Committee on Corporate Governance in South Africa).
Since the financial crisis of 2008 there have been several initiatives intended to improve auditor reporting. The International Auditing and Assurance Standards Board (IAASB), the US Public Companies Audit Oversight Board (PCAOB) and the European Commission (EC) put forward a series of proposals.
In 2014 the European Union released its new audit legislation, which included a number of changes to auditor reporting, you can read more about the EU legislation in our deep dive. In 2015 the IAASB released its new auditor reporting standard. Some countries have also enhanced their own national requirements to go beyond those in the new international standards.
Please find the latest on the enhanced auditor reports here.
A focus on the quality of the audit is at the heart of our assurance work.
Quality is the foundation of trust and stability in the financial markets. We and other members of the profession are continually improving the quality of our work and considering the relevance of the audit in the future. For more information, please see our dedicated page on Audit Quality.
Our commitment to delivering high-quality assurance services is at the heart of what we do.
We see the audit as one of the core building blocks of trust, stability and confidence in the financial markets. To remain relevant, the audit must evolve and adapt.
We, and other members of the profession, are working on developing new approaches and introducing innovative new ways to deliver a more comprehensive audit, for example, with new approaches to 'Big Data', real-time reporting, and broader assurance.
To engage in our discussions, please see our page on the future of audit.
Jan E McCahey
Global Public Policy Leader, PwC UK
Tel: +44(0)20 721 22535
Director - Global Public Policy & Regulatory Affairs, PwC UK
Tel: +44 (0) 113 2894311
Jacomien van den Hurk
Director - EU Public Policy & Regulatory Affairs, PwC Belgium
Tel: +32 (0)2 5880492