Brydon Review suggests sweeping changes to audit
Auditing would dramatically increase in scope to cover environmental and social governance if the Brydon Review takes effect.
- The Brydon Review was conducted to investigate the quality and effectiveness of audit in the UK.
- The report suggests auditors report information to shareholders beyond financial statements.
- The Review is likely to influence Australia’s current audit debate.
The final report of the Brydon Review into the quality and effectiveness of audit in the UK was released in December 2019. The review, headed by Sir Donald Brydon, followed a string of UK corporate collapses, including construction giant Carillion and travel business Thomas Cook.
Amir Ghandar CA, CA ANZ’s reporting and assurance leader, says its findings could be “incredibly influential” beyond the UK, calling the landmark 135-page report “the most comprehensive review into audit conducted internationally in recent history.”
Among many proposals, Brydon recommends adopting principles from the 2002 United States Sarbanes-Oxley Act (SOX), which was developed within six months of the fall of Enron.
Brydon also calls for “a fundamental shift” in how auditing is defined, to ensure auditors report more information to shareholders – beyond simply publishing financial statements.
“At a time when information is everywhere and there is no obligation on users of the internet to be truthful, it matters even more that shareholders, and others, can trust what directors are communicating,” the review states.
To further enhance transparency, the report recommends audit fees be shown as a separate line item in profit or loss accounts (and treated like dividends), disclosure of the number of hours spent on the audit, and that firms publish financial statements for their audit practice.
Picture: Sir Donald Brydon.
Will the Brydon Report affect Australian audit?
Ghandar says the report’s focus areas are relevant to the current audit debate in Australia, including the parliamentary inquiry into audit, the banking royal commission, wage payment issues and anti-money laundering breaches.
“The solution to these challenges must be strengthening of accountability, systems and controls – the lines of defence serving to address risks facing businesses and consumers,” he says.
“Boards, audit and risk committees, management, CFOs and auditors all have a role to play.
“Many of the Brydon recommendations are in line with CA ANZ’s 15-point plan handed down to the Australian parliamentary inquiry into audit, including greater transparency and strengthening independence and confidence,” he points out.
“Many of the Brydon recommendations are in line with CA ANZ’s 15-point plan handed down to the Australian parliamentary inquiry into audit.”
“This will transform accountability for risks facing investors and the public, including risk of failure, fraud, and environmental, social, and governance issues.”
Picture: Amir Ghandar CA.
Audit Quality in a Multidisciplinary Firm: What the evidence shows
Read the joint IFAC, ACCA and CA ANZ report Audit Quality in a Multidisciplinary Firm: What The Evidence Shows.Read more