Each new company scandal and financial crisis does inevitably lead to demands for increased transparency and more regulations, among other things when it comes to the financial audit of the companies. But it is largely the auditors’ profession itself that must lead the work of reinforcing the confidence in the audit. A more independent and reinforced supervision of accounting should also be developed, according to three researchers on accounting and auditing in the SNS report The Role of Auditing in Corporate Governance.
The EU Commission’s requirements for an increased regulation, the objective of international harmonisation and the introduction of principles-based accounting standards are some of the challenges for the auditing industry that are illustrated by the authors. Adhesion to the rules and standardization are, however, insufficient to increase the confidence or avoid new failures. Instead, professional integrity and new ways of thinking are required within the industry, according to the researchers.
−If auditing becomes strongly regulated and the agencies exist on a market with intensive competition, it is possible that the response of the industry will be even more standardized activities that are regulated by checklists. The question is whom this will benefit, according to Bino Catasús, Stockholm University.
Principles-based accounting standards, such as IFRS, mean that more entries in the financial accounts than earlier are affected by the evaluations of the company managers. This entails large requirements for the auditor to be principle-oriented and prepared to deal with the increased risks that might emerge when a scrutiny is made afterwards.
−There are strong forces that make auditors rule-oriented and client-oriented. One should begin to smell a rat when one starts hearing auditors talk about the fact that the idea of principle-based standards is that several different interpretations are possible, according to Niclas Hellman, Stockholm School of Economics.
The report concerns both the Swedish and the international trend.
The authors are Bino Catasús, Professor of Accounting and Auditing at Stockholm University, Niclas Hellman, Acting Professor of External Accounting and Financial Analysis at Stockholm School of Economics and Christopher Humphrey, Professor of Accounting, Manchester Business School, University of Manchester.
The report was presented at an SNS seminar on December 3.
The auditors’ profession needs to become better at communicating and driving questions of quality, as was claimed by Anna-Clara af Ekenstam, chairman of the Auditors’ Trade Association FAR when the new SNS report was presented and discussed.
Two of the conclusions that are drawn by the authors of the report are that:
The external auditors’ report needs to be developed so that others than the board of directors and the main owners get an insight into what has emerged during the auditing process.
There is a need for a deeper, developed and coordinated supervision of accounting and auditing that takes an overall view of these questions. The HQ-case made a distinction between auditing and accounting. This was due to the fact that within regulation and supervision, there is a distinction between accounting and auditing.
– The auditors will have to point out the consequences for the client of dubious applications of the auditing standards. At least in this case, the state does have an important role to play. Unfortunately, the responsibility for developing legislation, norms and supervision has been split among several different departments and authorities. This creates problems when it comes to drawing limits and risks for unclearness. It might also make it difficult to accumulate sufficient competency in one and the same place, according to Niklas Hellman.
JOHAN BYGGE, COO, EQT
BINO CATASÚS, Professor of Accounting and Auditing, Stockholm University
ANNA-CLARA AF EKENSTAM, Chairman, FAR, partner, PWC
LENNART FRANCKE, Senior Advisor, Swedbank
NICLAS HELLMAN, Acting Professor of External Accounting and Financial Analysis, Stockholm School of Economics
BJÖRN JANSSON, Managing Director, Investment Banking & Securities, Carnegie Investment Bank AB
FREDRIK RYSTEDT, former CFO at Nordea and Electrolux
The meeting was chaired by ILINCA BENSON, SNS