Description, analysis and discussion of the strengths and weaknesses of the oversight over the auditing profession in the UK and USA

After the huge fraud debacle of Enron, or even WorldCom, the government in London recognised that the oversight system of the auditing and accounting profession was obsolete.

So the Department of Trade and Industry announced, in January 2003, wide changes for these financial businesses. The former Financial Reporting Council and the Accountancy Foundation merged into one big unit under the lead of the Financial Reporting Council (FRC) as an Ltd. Through this decision, the structure and the flow of information were much more simplified. The cabinet tried with this update to set up a world-class standard in corporate governance and audit quality (Gouernsey Society of Chartered and Certified Accountants, 2004). The FRC’s responsibilities have been enlarged and now it takes a great role in the development of corporate governance, for example the Combined Code of Corporate Governance from 2003 and the review in January 2006 of the implementation of the code (Newcombe, 2007). In the position of an independent supervisor, the council has also other remits like: the introduction of accounting and auditing standards and therefore also the monitoring and enforcement of these regulations. Furthermore, the oversight of auditors and a permanent quality control of their work are important tasks of the FRC and the subsidiary boards. The council consists of up to 30 members who guarantee a wide representation from business, investors and other stakeholders. The five directors are nominated by the Department of Trade and Industry (Financial Reporting Council, 2007). The structure of the Council is illustrated in the figure below.

Gray and Manson (2005)

Each of these five boards is specialised in a main activity and the two most important which are linked with the assignment topic will be described.

The Auditing Practices Board (APB) works on the implementation of International Auditing Standards relating to independence, objectivity and integrity for auditors in the UK and also Ireland. In addition to this function the establishment of frameworks and guidelines are another part in the whole auditing oversight. Also, the APB is assigned to promote ethical standards which should help the accountant to decide on the right option in a difficult situation. All in all, these sources should help to reach an excellent Corporate Governance (Chitty and Vellacott, 2004).