While the attention of those interested in the reform of audit and corporate governance has naturally focused on government plans for legislative reform, ICAEW’s audit and assurance faculty has been busy developing innovative ideas for change that can be adopted by the profession and business without waiting for changes to the law.
To offer a different way of thinking we have published an Audit Manifesto, which provides principles for building a modern audit profession. We have now added to this a report on developing a meaningful audit and assurance policy.
This latter topic was the subject of one of the recommendations made by Sir Donald Brydon in his review of audit in 2019. He proposed that such policies would be rolling three-year plans, which were publicly available and put to an annual advisory vote by shareholders.
The ICAEW audit and assurance faculty took up this proposal and sought feedback from stakeholders via an extensive programme of engagement, including a questionnaire, interviews and roundtables. Insights from these discussions were used to put together guidance on how an audit and assurance policy could work in practice. So we were pleased to see the government reflect these ideas in the reform white paper published earlier this month, given the benefits we think it will bring to UK plc and users of corporate reports.
There has never been a greater appetite for trusted corporate information than now, as companies and their stakeholders look to assess the impacts of both climate change and Covid-19 on business strategies. The companies which put in place an audit and assurance policy will have the opportunity to provide stakeholders with a more comprehensive insight into business risks and the assurance activities put in place to help mitigate them.
A good audit and assurance policy has many potential benefits for companies, but it will be important to get it right from the outset. In particular, among the nine recommendations in our report we suggest that an audit and assurance policy can be of use beyond public interest entities; should be owned by audit committees; and would be best communicated through use of tailored, engaging and interactive content. Of course, any new initiative bring with it challenges, and so we have outlined what will need to be avoided too.
During our outreach, we were pleased to find support from stakeholders. It was clear from our conversations that there is solid support for a three-year rolling policy, which provides a genuine opportunity to improve trust and engagement as reform progresses. We hope that companies will seize the moment and create their own policies, rather than awaiting the introduction of a mandatory requirement.
The government consultation period runs until 8 July. With a need to consider responses before taking next steps, it could be some time before legislation is brought forward to make the plans in the white paper a reality. While we wait, the profession will continue to be proactive and identify reforms which do not require new laws.
Nigel Sleigh-Johnson is head of the audit and assurance faculty at ICAEW.