Auditors to review governance reports?

We have heard the phrase “the devil is in the detail” a lot during the election. Quite small details can have unintended consequences. So it is with the proposals around a review of the auditing profession, proposed by the European Commission.

Commissioner Barnier will publish a Green Paper in the autumn this year on the role of auditors. The objective of this green paper is said to be to initiate a debate on the role and the governance of auditors, as well as the possible changes which could be foreseen in this domain.

The Green Paper will also cover issues such as the concentration in the audit market and its implications on financial stability, the emergence of small and medium sized practitioners, the audit of SMEs and international standards on auditing.

We understand that the review could also include the extent to which stat audit of governance statements should be included. At the moment something like 9 or 10 of the 48 mandated disclosures in the Combined Code are subject to audit. What if this were to grow to include much more of the governance statement – for example including the business model to be required by the new Governance Code to be released shortly?

I cannot imagine that the auditing profession would be thrilled at this addition to their workload, never mind the potential for unlimited liability. Presumably they would prefer to see some form of requirement for an assurance of the quality of the information.

And as always the workload of the IR team – and the company secretarial team – would rise.