There's a bizarre statement in Economia magazine (from the Institute of Chartered Accountants in England and Wales) today, which says:
Auditors could develop a whole new service line for UK companies, checking that all the information in annual reports is reliable, says ICAEW
And there you were thinking they already did at least make sure it had a passing resemblance to the truth (as has been required, I thought, by auditing standards since the 1980s) but no apparently:
Today sees the new requirements for UK companies' narrative reporting in the “front half” of the annual report come into operation, including the new strategic review and information about human rights, diversity and greenhouse gas emissions.
At the moment there is no obligation for companies to have the information checked externally, although an increasing number of companies are seeking the comfort of an assurance review.
No wonder we've seen so much garbage to date.
And no wonder people have an expectation gap when it comes to accountancy.
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A bit unfair …
They’ve always been responsible for auditing the numbers and certain other specified pages/parts of the accounts. And it’s always clear from their audit report which pages of the report have been audited by them. There has never been an expectation that they are ‘checking ALL {my emphasis} the information in the annual reports is reliable’. If that’s what you did think then as a CA you should have known better.
I know auditors do read the bits they’re not responsible for auditing/checking and would hopefully (hope level depending on how much you think they’re in top management’s pockets) raise concerns if it was wildly off piste, but I am not sure there has ever been an obligation to do so.
As I read this, all that is happening is the auditors roles is expanding to obligate them to audit/check in some fashion that additional information.
Quite how you can ‘audit’ strategic reviews and so on though is another matter since much of it is statements of management’s opinions.
There has always been a requirement to check there were no conflicts
Candidly, I can’t see the new requirement is very different
Just making it ‘official’?
Anybody with a semblance of common sense can see that their is a difference between audited financial statements and the narrative found in glossy annual reports.
Can you you support your contention about the auditing standards in the 80s that required auditors to audit the annual report?
Candidly….you are deliberately seeking to mislead those readers who know no better.
I assure you I am not
No, I do not have my 80s auditing standards now
I well remember that this was a requirement
I am misleading no one
I am also quite ed to report if they found an inconsistency
This is just incorrect – there has never been a requirement to audit non-financial information (at least not since the 1970s; I have no personal knowledge prior to then but I doubt it was any different). Richard, if you make a completely counter-intuitive assertion like this then you need to support it with a reference – otherwise you risk damaging your credibility.
I never said there was a requirement to audit it
There isn’t now – although that can be done now
I said there was a requirement to review it and make sure it was consistent with the financial statements – and I am not sure how different that is to the current requirement
And I am quite sure I am right
But you can differ, if you wish
My guess is that originally auditors had to audit certain statements made by the directors – the director’s report being the obvious one as well as the numbers and notes themselves and this was enshrined in company law.
But then Boards of directors started to make statements in the accounts outside of those legal parameters – forward looking statements, opinions on the way the business is going/has gone etc.
I don’t recall what, why or when exactly but I have the feeling this may have been driven by stock market requirements – e.g. the FTSE regulations – and possibly they were following what was done in the US, where directors were already stating opinions, judgements etc. on business conditions past present and future. Up until then we in Britain were naturally more reserved about stating opinions/judgements on that type of thing.
I would also further guess that auditors felt uncomfortable about auditing such statements of opinion/judgements and so the requirement for these type of statements to be audited was never put in place.
So what we were left with was a set of accounts, some parts of which were audited and some of which were not.
Now it seems this inconsistency is being redressed.
Perhaps it’s the equivalent of moving in modern terminology from “cleaning” to “deep cleaning”?
First stop the “Big Banks”?
Oh how I’m trying to suppress the vision of Heracles and the Aegean Stables from entering my mind!
Who pays for the additional scope in reporting?
Companies
Quite rightly so
I suspect Mr. M….this won’t meet your comment policies but in for a penny…
“Today sees the new requirements for UK companies’ narrative reporting in the “front half” of the annual report come into operation, including the new strategic review and information about human rights, diversity and greenhouse gas emissions.”
Sounds like more corporate b*****t.
“human rights – yep, we try not kill any one at work in the UK and try and ensure that our suppliers don’t either but they’re on the other side of the world so work it out….”
“diversity – we employ lots of people. We’ve no idea who is gay, lesbian, TG or whatever as if we asked them – our workforce being what it is – would tell us rightly to f**k off’. We employ women and men. Some women get promoted, some men also but since most of the jobs require hard, physical labour, most of workers are male and so the senior roles operational roles reflect that fact as we tend to promote men from with operations. Lots of senior managers in the white collar bits of the organisation – like accountants and HR – are women…..”
“Greenhouse gas – yep we produce it. Quite a bit of it really but then we employ tens of thousands of people so we’re going to make a mess…but well try to not be too messy….but if you want the people employed you’ve got to be realistic….”
So to me, whether such garbage is audited or not, it doesn’t mean anything. It’s just glossy s***e for the AGM and to hand out to the financial journalists as they guzzle wine.
“It’s just glossy s***e for the AGM and to hand out to the financial journalists as they guzzle wine.” … and analysts from investment banks don’t forget!