David Jetuah and Mario Christodoulou, Accountancy Age, Tuesday 29 June 2010 at 15:57:00

Profession defends role of auditors in lead-up to banking crisis, but acceptsneed for change

ICAEW chief Michael Izza said reform of audit needs to ?evidence based?following the release of a scathing report which found the auditors lackedscepticism in the run up to the financial crisis.

Izza defended the profession after it received heavy criticism fromregulators today, who are seeking greater power to inspect and reform audit.

Izza said the profession had not failed in their duties in the run-up to thefinancial crisis and hit back after the Financial Services Authority andFinancial Reporting Council released a joint paper on enhancing auditors'contribution to regulation which slated the profession.

The paper claimed auditors did not challenge their clients, accusing them ofa willingness to gather and accept "evidence to support management?s assertions."

He agreed the report posed "tough questions" for the audit profession-anumber of which the institute raised with the Treasury select committee inJanuary 2009, but he flatly rejected the idea of a fundamental failure in theaudit process.

"Let us be clear," Izza said. "The committee concluded last year that therewas little evidence to suggest that auditors failed in their duties in the runup to the financial crisis."

He did concede the profession was still learning the lessons from the crisisand is now asking itself how the current audit model needs to evolve to meetchanging market needs.

But any amendments needed to be focused on the actual situation, not whatpeople feared it was, he warned.

"Any response to this question must be evidence based," Izza added.

Izza joined others from the Big Four who rallied to auditors? defence, whilealso accepting the need for change.

Richard Sexton, PwC?s head of audit in the UK, said the profession hadalready taken the initiative, producing a discussion paper on the audit reformearlier this month.

However he warned against confusing an auditor?s responsibilities.

?When it comes to professional scepticism, the regulators? perspective appearto be different to the auditing profession?s,? he said.

?We view our role as one of ensuring management has appropriate robustevidence to support its assumptions ? It is not for us to present an alternativeview and try to get management to accept it as better than theirs.?

Further reading:

Izzatakes the gloves off in blog