How might UK mandate for audit to find fraud work in practice?

The U.K. government on March 18 set out a series of proposals that would impose additional duties on both company directors and audit firms to detect and prevent fraud as part of a raft of measures designed to improve auditing and corporate governance

In this article for Compliance Week, FRA Partner Charlie Patrick offers his thoughts on the proposals:

"Identification of fraud is not always easy and can be time consuming, which is why there are often specialists involved in investigating fraud. It remains conceivable that some fraud will remain undetected by audit procedures."

He adds any new regulatory regime "needs to be proportionate. Otherwise, there will be an imbalance in the duty of care by the auditors and companies/directors, and likewise the penalties that ensue."

Patrick also questions just how far an auditor's duty will be to detect or prevent fraud under the proposals.

While critics have complained auditors have failed to detect major corporate frauds at companies like BHS, Patisserie Valerie, and Carillion, Patrick says the proposed requirement only asks for auditors to conclude the statements boards have made to implement and monitor fraud controls and procedures are accurate.

Likewise, he says, under the proposals, auditors would only be required to report on the work they have done to detect material fraud and the effectiveness of corresponding controls - neither of which would do much to address the "expectations gap" between auditors and the public regarding the purpose of the statutory audit.

Read the full article here