By Jennifer Hughes in London
Published: April 1 2008 22:01
Audit reports could be shrunk to a one-line standard accreditation, according to the head of KPMG Europe, who called for auditors to bear more responsibility for their opinions.
The comments come as the majority of companies produce their annual reports, including the audit opinion. Currently the opinions run to at least a page of largely technical, boilerplate language.
In a speech last night, John Griffith-Jones, head of KPMG Europe, said that in spite of the ever-growing length of the reports, many investors were still unclear as to auditors’ duties and responsibilities.
“Every word and paragraph added over the past 40 years was agreed by very eminent people in the sincere belief that each would add a new level of clarity to the world at large . . . yet we know that this has not been the case,” he said.
Since Enron, WorldCom and other corporate scandals earlier this decade, new rules and regulations have more clearly specified the role of auditors but the profession still complains it gets blamed each time a company fails.
“I think ‘where were the auditors’ is a cheap shot – but it is one that we have signally failed to answer by lengthening the audit report,” said Mr Griffith-Jones. “People need to know that we can’t guarantee to catch criminal fraud but that it is not for want of trying.”
Removing the caveats that litter today’s audit reports would require auditors to accept more responsibility – and to be confident that they had eliminated all material errors except fraud.
Mr Griffith-Jones said he was not arguing for any change in the rigour of auditing. He proposed a one-line accreditation for “clean” audit opinions, such as: “These accounts are about right unless management have deliberately conspired to falsify them.”
“There is undoubtedly an interest in making audit reports readable, but on the other hand we’ve got lots of people who worry and want to add bits and pieces to the reports,” said Isobel Sharp, a partner at Deloitte and president of the Institute of Chartered Accountants of Scotland, which hosted last night’s event. “My view is that we can be creative and deal with the worries in a different place, and we should focus on giving a clear message to investors in the report.”