Intrepid Accountancy Age reporter Rose Orlik had a busy day tweeting from the Meet the Experts conference. Here's an example:

Aarrgh! Please excuse me while I chew off my own arm in an attempt to distract myself. On the basis that "BIS's Carter" is Richard Carter, their Director of Corporate Law and Governance, I'm finding it hard to explain how someone of his experience and standing could get something so horrendously wrong.

Just open up the book of ISAs and it's there as plain as your face. ISA 200 sets out the overall objectives of an auditor seeking to perform an audit in accordance with ISAs. Paragraph 11 states:

In conducting an audit of financial statements, the overall objectives of the auditor are: 
(a) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and 
(b) To report on the financial statements, and communicate as required by the ISAs (UK and Ireland), in accordance with the auditor’s findings.   

You really couldn't get more principles-based than that! The other auditing standards then set out further guidance on what these two objectives mean in practice. But, while the other standards matter - and must be followed - an ISA audit must deliver these two objectives or it ought to be deemed to be inadequate.

Within the detailed standards themselves, there is further evidence of the intention of the standard drafters. They quite clearly intended these standards to be principles-based. Paragraph 21 of ISA 200 states that it's the objectives of each ISA that must be achieved by following each ISA's 'requirements'.  The requirements are the short instructions at the front of each ISA. The long, explanatory information at the end is there to help with following the requirements. What's not principles-based about that?

But what really gets my wick is that Carter is a civil servant at BIS. BIS is the body that has ultimate responsibility for audit regulation in the UK, a role it fulfils via the Financial Reporting Council.  So he really ought to know why auditors are, to use his term, auditing in a rules-based way. It's because of the system of regulation that has been laid down by the FRC through its oversight and inspection regime. A rules-based regulator necessarily instils rules based regulatees. So if Carter genuinely wants auditors to audit in a more principles-based way, his first port of call should be to wander down to Aldwych to bang some heads together at the FRC. They should be required to explain how their regulation is conducive to high quality, principles-based auditing in the UK.

People who read this post also read:

• Goldman Sachs and the timing of tax payments
• Christie Malry urges Accountancy Age to go back to school
• Interesting comments on tax gap estimates
• Bad news for the audit-bashers
• The lazy anti-auditor rhetoric must stop

Filed under: Auditing with tags accountancy age, bis, frc, idiots, international standards on auditing, isa 200, principles, richard carter, rules