§ Sir John HannamTo ask the President of the Board of Trade if he will make a statement on the outcome of his review of audit monitoring.
§ Mr. Neil HamiltonThe new arrangements for monitoring registered company auditors were set up under part II of the Companies Act 1989. It was agreed at the time536W with the recognised supervisory bodies that it would be sensible to review those monitoring systems in the light of experience.
At the end of last year, therefore, I asked the RSBs to report to me on the effectiveness of their monitoring. I also asked Professor Peter Moizer of Leeds university to provide me with an independent assessment of the state of audit monitoring.
I have now considered these reports. They show that the present system of monitoring is generally working well and that the substantial efforts and resources which the RSBs are devoting to it are bringing to light cases of under-performance, and helping to remedy them where they exist. The first two years' monitoring has also shown that there is a range of performance among audit practices, and that there is scope for improvement among many of those inspected.
Against that background, I have therefore asked the RSBs to put in place a wider range of monitoring methods to ensure that overall, and within present resources, a higher proportion of the registered auditor population is inspected than is currently the case; to match the monitoring techniques more closely to the widely differing circumstances of practitioners; and to identify and target those firms where achieving the required standards may present a greater challenge. The RSBs will be submitting these plans to me in the autumn.
These changes will reflect one of the main messages of Professor Moizer's report: the need for the RSBs to adopt greater flexibility in the monitoring methods that they employ. Professor Moizer's report has made a valuable contribution to the development of audit regulation policy, and I am today placing copies of the report in the Libraries of the House.