ICAEW calls for more transparency in bank audits

2012-03-15 Author: BCAA


The ICAEW has called for greater transparency in the bank audit process.

In a new report, Enhancing the Dialogue Between Bank Auditors and Audit Committees, it proposes that details of key accounting judgments that have been challenged by the audit committee should be published in banks’ annual reports.

It is also recommending stakeholders get much better access to some of the key details about the challenge and debate that take place between a bank’s auditors, the audit committee and executive management.

The report, part of ICAEW’s ‘Inspiring Confidence in Financial Services Initiative’ is the natural successor to the institute’s 2010 tome - Audit of Banks: Lessons from the Crisis.

The Audit of Banks report identified several areas where improvements could be made in the wake of the global financial crisis, highlighting the behaviour of those responsible for governance in banks and financial institutions.

It found that much of the bank audit process takes place behind closed doors. Such a lack of transparency led to questions about the extent of professional scepticism.

Iain Coke, ICAEW’s financial services faculty head, said: ‘Nowhere is good and transparent governance more important at the moment, than in banks. Public confidence has been damaged and must be re-built. Clear reporting, robust auditing and transparent governance processes are all critical elements for that to happen.’

‘The effectiveness of the audit process depends on the relationships between the auditor, audit committee and executive management. For rigorous challenge to take place in an open way, the relationships must balance cooperation and challenge, be based upon trust while underpinned by professional skepticism’. Some of the report’s recommendations include considering key accounting judgments in light of risks, such as the audit committee might debate whether it is appropriate to accept both an aggressive risk strategy and a valuation at the aggressive end of the acceptable range.

The full report can be downloaded from the ICAEW website.