The audit landscape is changing. What will it mean for your business?

The UK has always been global leader when it comes to audit, and our approach is often used as a benchmark for other counties.

However, over the last few years, a number of high profile corporate scandals have rocked the profession and thrown public trust into disarray. The BEIS’s new White Paper calling for audit reform is therefore a welcome step in driving meaningful, long-term change.

As the consultation on the White Paper drew to a close earlier this month, I have outlined some of the changes we may see as a result of the proposal and the potential impact they could have on the profession and your business.

The question of quality

Audit quality is vital - it always has been and it always will be. A high quality audit doesn’t just ensure compliance, but it is also plays a key part in business growth. It enables you to spot opportunities, potential risks and gives you important insights into your business.

Unfortunately, last year the FRC reported that a third of audits undertaken by seven of the largest audit firms needed to be improved or significantly improved.

As a result, we could see a new regulator (the Audit Reporting and Governance Authority) replacing the Finance Reporting Council. Not only will this new regulator have more power to ensure that auditors are held to the highest possible standards of practice, but they could also be tasked with implementing proposed new measures for SMEs, which will focus on auditing standards for Less Complex Entities – a welcome step for our clients.

By honing in on quality, the new reform will ensure that audits remain robust and appropriately challenging, so you can be assured you are receiving a high quality audit opinion. However, the impact of the reform cannot be underestimated, and it should strive to be a cultural change for the long term rather than checklist driven, in order to truly make a valuable impact.

Holding directors accountable

Business directors could have a lot more responsibility when it comes to governance and their business’s continuity in the near future.

The reform suggests that directors will have more accountability for ensuring that their capital maintenance, dividends and accounts are accurate, and that their internal controls are sufficient and appropriate.

More accountability can only be an improvement for the users of financial statements, such as banks, shareholders and employees.

Opening up the marketplace

The marketplace is dominated by a few big players, with the four biggest firms completing 97% of FTSE 350 audits. Understandably, concerns about competition and resilience have been building for some time.

There is already movement in the market, insofar as people are spending more time considering the quality of their audit and the relationships with the auditors. By shaking up the market further, we could see more businesses - SMEs in particular – considering whether it is time to move away from the bigger audit firms.

This should all lead to more healthy competition and marketplace resilience, which will further push auditors to do better and inspire more trust in the profession.

The road ahead for audit…

Whilst we welcome the reform, as it will ultimately help businesses across the UK, the proposals could be very challenging for auditors, directors and regulators alike. It is also worth keeping in mind that a broad brush approach to all UK businesses is not the right answer, and that will be the challenge in the years to come.

These changes are not going to happen overnight. In the meantime, we continue to adopt a tailored and bespoke audit approach to each of our clients, at Haines Watts. By investing the time to get to know you, your business and the challenges you are facing, we always aim to create strong, long-standing relationships with all of our clients.

As the audit landscape continues to change, we are welcoming more great people to our team who are passionate about the profession, always strive for continuous improvement, and are proactive in meeting ever-changing needs of clients.

If you have any questions about the new reforms might affect your business, or you want to find out more about how our audit team can support you, please feel free to get in touch.