In the wake of several high-profile collapses and scandals, political and regulatory attention remains heavily focused on the audit profession.
Back in 2014, IFAC published the article Making Financial Reporting Better: Strengthening the Financial Reporting Supply Chain asking the question:
"Is it sufficient to wait until the next crisis hits and ask only: “where were the auditors?"
The article highlighted that to improve the quality of financial reporting, only a holistic, critical assessment of the entire financial reporting chain will be effective - a coordinated approach that considers all the people and processes involved in the preparation, approval, audit, analysis, and use of financial reports.
Yet almost 5 years later, the issue still stands that audit is being considered in isolation of the wider ecosystem. Corporate failures have resulted from significant failures in governance, and proposed audit remedies are not likely to succeed unless other aspects of the system are also addressed. This includes reviewing the roles of the audit committee and executive management, the effectiveness of the CFO and finance function (including their role in supporting those charged with governance), and the value of the internal audit function.
The IFAC PAIB Committee considered these topics at its recent meeting in March, which included a presentation from the Institute of Internal Auditors on its plan to update the ‘Three Lines of Defense’ model, and development of a tool to evaluate the effectiveness of the finance function (to be published later this year).
In addition, four PAIB Committee members shared their experiences on audit committee effectiveness, drawing from their roles on boards and audit committees, or from their interactions with audit committees. The PAIB Committee then considered what was enabling and disabling audit committee effectiveness in their jurisdictions.