The Professional Oversight Board, a part of the Financial Reporting Council, today issued a consultation document on the form and content of public reporting on the work of its Audit Inspection Unit, which is responsible for the direct monitoring of the quality of the auditing of listed and other major public interest entities.

The existing approach - that the AIU does not publish inspection reports on individual audit firms, or identify audit firms by name in its Annual Report - was laid down at the end of 2003 by the Group under the auspices of the Government which oversaw the implementation of the Government’s “post-Enron” reforms to the UK audit regulatory regime. The Oversight Board has had it in mind to look again at this issue once the new inspection arrangements had been in operation for a reasonable time and took the decision in May to consult publicly.

Since then this issue has been raised in the House of Lords during debate on the Company Law Reform Bill. Several peers argued that the publication of reports on individual audit firms would provide valuable information in particular to audit committees. Lord Mackenzie of Luton, who spoke for the Government, noted that the Oversight Board would be consulting on this issue. The Oversight Board took the view that it would be helpful to consult whilst the Company Law Reform Bill was still before Parliament. This will help to ensure that Parliamentarians considering this or related issues have all the relevant information and considerations in mind.

The consultation document sets out the advantages and disadvantages of extended public reporting of the results of AIU inspections. It also identifies a series of possible options.

The Chairman of the Oversight Board, Sir John Bourn, said

“We make clear in the document that the Board’s preference is to include a section in the AIU’s annual public report on a named audit firm where the Board considers that audit firm to have made insufficient progress in addressing the AIU’s recommendations or that the firm has failed to cooperate adequately with the AIU. We consider that giving audit firms the opportunity to correct weaknesses on the basis of private reports, and only “naming and shaming” where the response is inadequate, provides the strongest incentive for firms to take timely action. However, we recognise that there are persuasive arguments for and against more extensive public reporting and we are keen therefore to have the views of all interested parties both on the strength of the arguments and on the options we identify”.

1. The Financial Reporting Council (the FRC) is a unified, independent regulator. Its aim is to promote confidence in corporate reporting and governance. The FRC has six operating bodies: the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy Investigation and Discipline Board.
2. The Professional Oversight Board contributes to the achievement of the Financial Reporting Council’s own fundamental aim of promoting confidence in corporate reporting and governance. It has four main responsibilities:
   • a statutory obligation to oversee the regulation of auditors by the recognised accountancy bodies;
   • the monitoring of the quality of the auditing function in relation to economically significant entities;
   • independent oversight of the regulation of the accountancy profession by the professional accountancy bodies.
   • independent oversight of the regulation of the actuarial profession by the professional actuarial bodies.
3. The Chairman of the Professional Oversight Board is Sir John Bourn. He is the Comptroller and Auditor General.
4. The Professional Oversight Board is independent of the accountancy and actuarial professions. Its members have wide experience of business and the professions, the public sector, accountancy, auditing and actuarial work.
5. Responses to the consultation document should be sent by E-mail to c.trickett@frc-pob.org.uk or to:  Christina Trickett,  Professional Oversight Board, 5^th Floor, Aldwych House, 71-91 Aldwych, London WC2B 4HN, by Friday 22 September at the latest.
6. All press enquiries, or other queries about the issues raised in the consultation document, should be directed to Paul George, Director of the Professional Oversight Board, telephone 020 7492 2340.