worldwide interest in auditing following the scandals in
the United States has been so great that not only are the
regulatory developments in this country widely reported
around the world, but so too are opinions and views on how
to enhance the reputation of auditing. Thus, the August
2003 CPA Journal article “Accounting Profession,
Heal Thyself: A Matter of Survival,” by Ronald M.
Mano, Matthew L. Mouritsen, and James G. Swearingen, three
academics from Weber State University in Utah, was reported
as a major news item in the London edition of the Financial
Times. The views expressed in that article stimulated
much comment in the United Kingdom and were widely discussed
throughout the European accountancy profession.
president of the Institute of Chartered Accountants in England
and Wales (ICAEW) during the aftermath of Enron and WorldCom,
I have thought deeply about these issues, and have debated
them with many well-informed and experienced accountants,
academics, businessmen, regulators, and politicians. Action
was required, and has now been taken. But, as with any action,
there is always the risk of unintended consequences, and
many proposals that have been advocated on both sides of
the Atlantic would be counterproductive. I am clear that,
were the British authorities to incorporate the views expressed
in The CPA Journal article into U.K. regulations,
it would have a catastrophic impact on the quality of auditing
in my country.
of the debate around the world has been about auditor independence,
including the contribution from professors Mano, Mouritsen,
and Swearingen. Auditor independence is important, of course,
but it is not all-important. Auditor independence
is but a means to an end. The United Kingdom takes this
issue seriously and has stringent measures in place, based
on some very well understood principles. But what really
matters is the quality of the audit, which, above all else,
is itself dependent on the quality of the people who conduct
the United Kingdom, the ICAEW has, over many decades, been
working to ensure that the highest-caliber people are attracted
into the accounting profession, and that they receive the
best possible training to equip them to be first-class auditors.
U.K. auditing firms have been immensely successful in recruiting
the best graduates from our country’s best schools.
This has been possible because the chartered accountancy
qualification is traditionally seen as a first-class business
education, leading to many different career opportunities.
The vast majority of publicly owned companies in the United
Kingdom have at least one chartered accountant on the board,
often as CFO, but also as chairman, CEO, or independent
nonexecutive director. Many people here would take a dim
view of a company where the CFO lacked a professional accountancy
is worth remembering that most audit failures arise because
of a failure by the auditor to understand the wider business
dimensions, the areas of risk inherent in the business,
or to see the big picture. Few if any audits fail because
detailed procedures were not followed or because of a lack
of independence. Thus, a broadly based business understanding
is essential to good auditing. This will undoubtedly best
be obtained in a multidisciplinary firm environment.
recent years’ scandals have, of course, undermined
investor confidence. Because perception matters as much
as reality, restoring that confidence requires not only
that the right actions be taken, but also that the right
actions are seen to have been taken. An improvement in perception,
however, will be no more than a short-term victory if the
reality is a fall in the quality of auditing. Instead, I
would suggest that most of the steps necessary to restore
confidence have already been taken.
the strong criticism in the United Kingdom of the extraterritorial
aspects of the Sarbanes-Oxley Act, the major provisions
of the act are widely seen here as being the right and proper
measures. Many would consider greater transparency by companies
and auditors as the final ingredient necessary to ensure
confidence in the audit process.
An ever-tightening definition of the role of the auditor
and the work auditing firms can provide will not achieve
the goal of higher-quality audits. Indeed, it will have
exactly the opposite effect, and I believe the profession
should do more to disseminate this message. The debate will
no doubt be vigorous, but the alternative is that we accept
the erosion of the profession and of our ability to continue
to attract the best and the brightest entrants. The end
result would undoubtedly be poorer-quality audits and potentially
more business failures.