Meeting the Challenge of Tougher Audit Controls

May 5th 2021 | Posted by Dave Cross

Meeting the Challenge of Tougher Audit Controls

Meeting the Challenge of Tougher Audit Controls

The release of the Brydon report, in 2019, shone a light on the need for reform in the audit arena.

The recommendations in the report aimed to improve the quality of audit in the UK. They referred not only to the work of auditors but also to the actions of other stakeholders in the audit process.

Following the publication of the report, a Department of Business, Energy and Industrial Strategy (BEIS) consultation began. Now, the proposals from this consultation have been announced.

Announcement from Business, Energy, and Industrial Strategy (BEIS) consultation

The recent BEIS announcement is sure to herald significant changes in the audit landscape. Although, the exact regulatory impacts are yet to be determined.

Some of the main aims of the proposals are:

  • Limiting the market share of the Big Four and opening up the audit market.
  • Enabling the new Audit, Reporting, and Governance Authority (ARGA) to regulate listed and unlisted companies.
  • Allowing the ARGA to force accountancy firms to separate the operations of audit and non-audit activities.
  • Introducing reporting obligations for directors and auditors, including climate reporting. This is aimed at reducing the occurrence of fraud.

It may seem as though much of this has been under discussion for years now. A strengthening of audit processes has been at the forefront of Financial Reporting Council (FRC) concerns ever since the introduction of the US Sarbanes-Oxley Act (SOX) in 2002.

However, it does seem as though now is the time for changes to happen. Although, it’s unlikely that they will be as prescriptive as legislation in the US.

What does the announcement mean?

The precise implications of BEIS proposals are yet to be clear, as are the dates for any changes. However, potential improvements include:

  • Enhanced quality of financial reporting.
  • Earlier identification of non-compliance.
  • Standardisation of processes.
  • Reduction of complexity.
  • Strengthening of trust.

There are differences of opinion in the accounting profession and the overall business community regarding the potential impact of any changes.

For instance, there is concern about increased regulation “slowing down” businesses as they attempt to recover post-pandemic. Some experts have also voiced concerns about the potential stifling of innovation.

There is also a worry that SMEs will struggle with the additional bureaucracy. They could potentially fall behind if they fail to adopt beneficial changes that come from any reform. In order to make this less likely to happen to their clients, well-informed accountancy firms are re-stating how essential internal control is and why businesses should take the opportunity to examine their internal control practices critically.

Time for an internal control overhaul

An overhaul of internal control can take a considerable amount of time. So, it makes sense for businesses to begin now and put themselves in the best possible position for when regulatory changes are made. This includes:

  • Educating everyone within the business about how the regulatory landscape is changing.
  • Conducting a risk assessment of current processes and procedures.
  • Allocating financial resources and people to ensure that enhanced audit compliance can be achieved.
  • Developing a complete understanding of data, where it’s held, how it’s used, and how secure it is.

Taking action around internal control now helps businesses to overcome the challenge of tougher audit controls that lies ahead.

If you are an accountancy professional looking for your next role, register with us. If you are on looking to hire an accountancy professional, get in touch.