Creating an independent audit profession

May 2021

FRC CEO Sir Jon Thompson was recently in conversation with ICAEW chief Michael Izza. So did he think the new White Paper will change the audit profession forever?

Creating an independent audit profession will be one of the biggest challenges in the government’s latest proposals to overhaul the UK’s audit regime, according to the FRC’s Sir Jon Thompson, the man who will have a major part in making change happen.

In a recent webinar with ICAEW CEO Michael Izza, Sir Jon admitted that the creation of an institute of corporate auditors was “a difficult thing to envisage”. He felt that giving birth to a new institute and getting people to support it was going to be hard. “It is a significant thing to try to attempt,” he said.

Sir Jon said he understood the government’s desire to want to drive improvement in the quality of audit, and accepted its decision to create a new profession.

However, he thought that the transition to an independent audit body could prove problematic, and he wondered if a totally separate profession was the right way to go. He thought organisations like the ICAEW (and ACCA) could offer two qualifications – one for auditors and one for everyone else. Although this wasn’t Sir Donald Brydon’s vision (he wanted total separation), Sir Jon felt a market-driven response could still get the profession to where it needed to be.

Sir Jon also stressed that a major part of the proposals was the focus on boardrooms. He said: “Boards run companies and they should be held primarily to account when things go wrong.” He includes non-executive directors in this, too. This should, he emphasised, then help people see the auditor’s role in context.

When it comes to audits and auditors, Sir Jon acknowledged they have had a bad run in the media. But he felt all the Big 4 were trying to do more to create a better end result. And when it comes to operation and separation change is already happening. Two of the Big 4 have sold parts of their businesses, and KPMG, for example, has split the traditional role of the MD into two roles.

The three recent reviews of the audit profession created some 155 recommendations (if you don’t count others from parliamentary committees), and he said the White Paper has taken forward 80% of them, amended around 10%, and rejected just 10% of the proposals.

The consultation now runs until early July and Sir Jon felt it will take several years to implement all the proposals even when the legislation is finally passed.

Whether this all means audit is an attractive profession to join is a worry for some. Sir Jon felt as an auditor’s role expands, to include things like climate change and the environment, a new generation will hopefully be drawn to it. He said: “It is a fantastic career and one I did for five years.” Michael Izza agreed and added: “A profession with a purpose is what we need.”

To read ‘Restoring Trust in audit and corporate governance’ in full go to https://tinyurl.com/bu9rekfe.