Finance and Accountancy Briefing
Audit's role in the current financial crisis
The Financial Services Authority (FSA), in conjunction with the Financial Reporting Council, has recently issued a discussion paper seeking views on how the contribution auditors make to “prudential regulation” might be enhanced.
Probably the most striking “charge” in a wide-ranging paper is that auditors are accused of being too concerned with collating and accepting evidence to support management’s assertions, thereby demonstrating what the FSA calls a “worrying lack of scepticism”.
Further, the FSA has intimated that greater regulatory supervision is likely if what it regards as a general failure on the part of auditors to blow the whistle on accounting irregularities continues.
The paper concludes by asking for input from interested parties so that auditors are better able to meet the FSA’s expectations, as well as those of society at large.
The publication of the FSA’s paper coincides with various findings of the FRC’s Audit Inspection Unit which, it says, highlight failures by auditors to challenge management assumptions, particularly when it comes to internal asset valuation.
If that were not enough, the Auditing Practices Board (APB) and the House of Lords Economic Affairs Committee have also queried whether auditors are applying the “correct” level of scepticism, saying that, in view of the problems affecting the banking industry, it is now time to look at how audits are carried out.
For a more in-depth look at RPC’s paper, please download it now.
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