The audit profession is at a tipping point. Without significant innovation in its business model, staff recruitment strategies and audit execution processes, the audit profession may not remain relevant in the 21st century. The number of claims against auditors has significantly increased over the past twenty years due to the spate of corporate and audit failures early in the 21st century (Enron, Worldcom, Parmalat, etc.). Regulation to monitor professional and ethical standards has increased, leading audit firms to feel under even more financial pressure. In addition, the investor community is calling for greater insight and foresight from auditors. These challenges, coupled with the unlimited liability regime of auditors still applicable in many jurisdictions, are making audit firms and regulators nervous as to the systemic risk of another one of the Big 4 failing.
And yet, the audit profession is in place to protect businesses, their wider stakeholder groups, including clients and investors, and society at large. Therefore, this book asks the important question about the profession’s future and engages a broad readership in the discussion of audit failure and reform.
Intended to help readers to get up to speed with the issues and possible solutions quickly, this book assists directors, investors, business people and regulators, especially those with a non-financial background, to gain a greater understanding of the challenges and threats being faced by the audit profession, which in turn could disrupt the capital market and affect businesses across the globe. The book outlines the critical success factors needed for a sustainable audit profession.
Table of Contents
List of tables; Foreword (Sir Mark Moody-Stuart); Acknowledgements; Acronyms and Glossary of Terms; Authors’ introductory note; Introduction; Part 1: The History of Audit; Chapter 1: History of Accounting and the Birth of the Loan Stock Company; Chapter 2: History of Auditing and the Birth of the Audit Profession; Chapter 3: The Statutory Role of Auditors; Chapter 4: The Audit Expectation Gap and the Role of Audit Regulation in Bridging the Gap; Part 2: The Threat – the Ability of the Audit Profession to Meet the Demands of the 21st Century in the Context of Auditor Responsibility and Liability; Chapter 5: The Era of Audit Regulation; Chapter 6: The Modern Day Role of Auditors; Chapter 7: Auditor Responsibility and Liability; Chapter 8: Regulatory Focus Areas Impacting Auditors; Chapter 9: Critical Success Factors of a Strong Audit Profession into the Future; Part 3: Addressing the Liability Threat – The Auditor Judgment Rule; Chapter 10: Damages for a Negligent Audit; Chapter 11: The Outcry for Limitation of Auditor Liability; Chapter 12: Directors’ Duties and the Business Judgment Rule; Chapter 13: The Auditor Judgment Rule; Part 4: In Conclusion; Reference list; Index
Mervyn King consults and advises on corporate legal issues. He is recognised internationally as an expert on corporate governance and reporting. He sits as an arbitrator and as a mediator. He is a founding member of the Arbitration Foundation of Southern Africa and for some eight years was the South African judge at the ICC International Court of Arbitration in Paris. He has acted as an Inspector of Companies and a Commissioner of Inquiries into the affairs of companies. He is a regular speaker on radio and television talk shows and ran his own television series, King on Governance.
Linda de Beer is an independent non-executive director, serving on the boards of a number of listed companies. She provides reporting and corporate governance advice to various corporates, does mediation on technical reporting, auditing and corporate governance matters, facilitates training and performs expert witness work on these matters. She is an honorary professor (professor in practices) at the University of Johannesburg, South Africa. She previously chaired the Consultative Advisory Group of the International Auditing and Assurance Standards Board and currently serves on the Investor Advisory Group of the Public Company Accounting Oversight Board in the US.
"Mervyn King and Linda de Beer, two highly renowned corporate governance and reporting experts, have asked a very relevant question: Quo Vadis - where to? The question is not only asked to auditors around the globe, but equally to key stakeholders, such as boards of directors and regulators. In clear language the authors describe the history and development of audit until today, followed by an analysis of threats to the future of audit. The liability threat, in particular for the going concern nature of the Big Four audit firms, is a key concern to them. This stems from their analysis of audit as a public interest profession - essential in today's society to the information needs of investors, employees and other stakeholders of both private and public sector entities. The description by King and De Beer of the perspectives ánd challenges to this profession reads like a thriller - and concludes with a call and specific recommendations to all involved for contributing their part to the quality, relevance and continuity of audit. "
Prof Arnold Schilder – Chairman, International Auditing and Assurance Standards Board
"A masterful synthesis on the vital role of the audit and a ‘must read’ for directors, audit committees, and anyone interested in the audit. In this wise and readable treatise, King and De Beer tell us where the global audit stands, how we got here, and where we need to go."
James R. Doty - Former Chairman, Public Company Accounting Oversight Board
"The auditing profession is at a turning point – gone are the days when historical financial performance was the sole focus of investor interest. Today ICGN members, representing USD $34 trillion, want reliable corporate reporting focusing on intangible drivers which impact a company’s risks opportunities and prospects for the future. This is set within the context of multiple challenges facing the long term sustainability of the auditing profession itself which are outlined in detail by Mervyn and Linda in this book. It is imperative that we safeguard the future of the auditing profession and the vital role they play in assisting the proper oversight of corporate governance, ultimately to preserve and enhance long term corporate value for the benefit of society as a whole."
Kerrie Waring - Executive Director, International Corporate Governance Network
"The book underlines the challenges that the audit profession has faced for decades but still struggles to address, including effectively communicating its role in the reporting system, the need for proportionate liability, the need to recruit the best, and the limitations of the accounting system. They conclude on the importance for auditors to embrace the change being experienced by all businesses in both the private and public sectors, and the ability for them to tell their story through Integrated Reporting. Technology is providing the opportunity for them to reengineer their organisations, it is also providing challenges. Whatever the change it must be underpinned by the age old requirement of an auditor: professionalism."
Charles Tilley, Chairman, Chartered Global Management Accountants Research Foundation