In a world of conspiracy theories and mistrust is it any wonder auditors are facing a fair and reasonable challenge for “marking their own homework“?
The audit sector has been under an increasing level of scrutiny and criticism, with conflict of interest allegations, scandals and accusations of serious failings. This has led to the five recent or in-progress reviews in the audit sector.
The Competition and Markets Authority launched a review of the audit sector in October 2018 – the investigation covered three areas: sufficient choice, resilience and incentives.
Sir John Kingman led the review of The Financial Reporting Council (FRC), to assess the FRC’s governance, impact and powers, to help ensure it is fit for the future and on Tuesday 18th December, the review listed 83 separate recommendations, including:
Labour’s shadow chancellor, John McDonnell commissioned Professor Prem Sikka to lead a panel review of the audit sector and make recommendations – the results were damning and highlighted the following:
So, what’s the impact of all this on pension schemes? Well, it’s probably a bit of an alarm bell for some. When scheme data needs to be audited, derisking options need to be calculated – the almost natural default is to look to your auditors.
Yes, auditors audit, but pension scheme data is unique, each data row a snap shot that reflects the legislation, accrual rates, scheme rules and myriad other nuances bespoke to the time the data was recorded. This is far more in depth than any checking and balancing exercise.
To extract, audit, report and cleanse data in a truly robust manner, schemes should look for true independence, there shouldn’t be any ties to the data.
There should be technology available that is tried and tested, that has been developed to meet evolving data objectives as well as changing pensions legislation. This is not where auditors are experts; ask yourself:
Can auditors add value with non-auditing services?
Is it right that in many cases they are responsible for declaring any conflict of interest?
Are they specialist in pension data?
Can they provide the best solution for your scheme?
After the five reviews in progress will that even be an available option?
There are certainly a lot of questions to answer for the audit sector, and 2019 looks like it will bring some significant change that could impact many schemes and the processes they have followed year in, year out.