UK: BIS response to European Commission audit policy consultation

The Department for Business, Innovation and Skills has published its response to the European Commission's green paper on audit policy: see here (pdf). With regard to the so-called audit expectations gap, the Government notes:

It is clear that there has been an expectation gap in as much as the audit is often assumed to provide a greater degree of assurance than any system can actually provide. The expectation gap has been well known for 50 years. Over that time attempts have been made to reduce it both by increasing the quality of audit through interventions such as audit inspections, auditing standards and professional education, and publicising the limits of the audit by amendments to the audit report requirements.

The Government’s view is that information about the company-specific issues such as the degree of aggression in the company’s accounting choices, the risk position of the company and the key judgements taken during the course of the audit might be best disclosed in the report of the audit committee. The audit committee could be required to give a view as to the extent to which and how Directors have complied with accounting standards in arriving at a true and fair view. The audit committee could explain the processes and reasons for auditor (re)appointment. Whilst seeking an expanded audit committee report, it is important to note that the audit committee is a sub-committee of the Board and that relationship of Board responsibility needs to be maintained".