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Calls for More Auditor Skepticism Will Push Up Fees

Neil Baker | March 11, 2011

U.K. regulatory efforts to make auditors more skeptical would lead to unnecessary compliance cost increases, a leading business lobby group has warned.

In a raft of changes aimed at encouraging auditors to challenge corporate executives, audit watchdog the Financial Reporting Council has proposed replacing the current requirement for auditors to exercise an “enquiring mind” with a new test of “presumptive doubt.”

The proposed reforms stem from concern that auditors were too soft with their clients in the run-up to the financial crisis.

But the Confederation of British Industry, a leading employer organization, has come out against the idea.

“Such a change, if implemented, would seem to envisage and result in the need for significant additional work by the audit firm, which in turn would significantly increase audit costs for business,” said Clive Edrupt of the CBI's competitive markets directorate.

Changing the enquiring mind rule runs contrary to the FRC's risk-based approach to regulation because it is not clear that the rule had failed to secure auditor skepticism, said Edrupt.

Audit firm KPMG has also opposed the move. The rule change could force auditors to be too confrontational, weaken trust between the auditor and executive management, and damage audit quality, the firm said.

“We are concerned that using the term 'presumptive doubt' will upset the balance too much,” it argued.