As I read November’s Accountancy magazine, I was pleased to see Tracy Gordon, who I used to sit next to 10 years ago at Deloitte, has become famous enough to write an article about the latest Companies Act. I enjoyed that it was more apocalyptic than the usual articles about Financial Reporting…and there may be some significant impacts on accountancy firms, especially those in the mid tier.
With effect from 6 April 2008, the Companies Act 2006 introduces a number of measures that impact auditors:
- the criminal offence of “reckless auditing”;
- the requirement for auditors of quoted companies to provide a statement of circumstances in all cases of resignation;
- reporting on whether there are “adequate accounting records”;
- significant changes to the directors’ report;
- potential publication of terms of engagement; and
- the rights for members of quoted companies to raise concerns about the audit.
As there is no detailed implementation guidance yet, it is difficult to assess the full likely impact of these changes, but forewarned is foreramed.
The requirement that I am going to focus on is that of reporting on “adequate accounting records” as I think the effect of this is most likely to be underestimated. This judgement is a step-up from previous requirements. It will require more controls-type work by audit teams to get the right evidence. This will be relatively straightforward for larger clients, where controls-based auditing is well established. However, it will require a change in emphasis for the clients where firms have relied on a largely substantive (or “tick and bash”) audit approach.
If this change of emphasis is significant, it will change the skills mix required on audit teams (typically assessing controls is a more advanced skill than substantive auditing). This means that there may well be some learning needs coming your way soon (the impact on the Big Four firms will probably be less than for the mid tier). It may be worth talking to your technical department to see how much of an issue this will be for your firm and what plans you can get underway to reduce the pain in 2008.
p.s.
If you want to find out more about the Companies Act, it would be rude for me to not to plug shamelessly www.companiesactnow.co.uk where directors of small companies can get access to the Companies Act in the form of relevant and engaging e-learning.
