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CPIA publishes inaugural Audit Trust Index

Despite high satisfaction levels with audit quality and value, 1 in 3 audit committee chairs lack confidence in auditors’ detection of financial distress, finds CPIA Audit Trust Index

  • A strong majority of audit committee chairs (94%) are satisfied with the quality of the audit process, along with 86% of finance directors and 77% of investors[1]
  • However, 32% of audit committee chairs, 21% of investors, and 16% of finance directors express concerns about auditors’ ability to identify signs of financial distress or going concern issues
  • 97% of audit committee chairs and 94% of finance directors are confident that auditors are maintaining their independence and objectivity, compared to 85% of investors
  • Just over half (54%) of investors find public audit reports clear and informative compared to 31% of audit committee chairs

London, 6 December 2024 – The Centre for Public Interest Audit (CPIA), a new research and policy institute dedicated to shaping best practice and informing the future of public interest entity (PIE) audit in the UK, has today published findings from its inaugural Audit Trust Index.  This index measures and tracks perceptions of audit trust, while also identifying emerging trends and challenges the profession is currently facing. The research is based on an independent poll of UK equity investors and FTSE 350 finance directors, and a survey of audit committee chairs, conducted by the CPIA[2].

A strong majority (94%) of audit committee chairs, alongside 86% of finance directors, and more than three quarters (77%) of investors reported satisfaction with the overall quality of the external audit process. However, concerns persist about auditors’ ability to detect financial distress and going concern issues. Nearly one-third (32%) of audit committee chairs and 21% of investors expressed doubts in this area.

Baroness Ford, Chair of the CPIA, commented: “The overall high satisfaction levels with audit quality and value are encouraging. However, it is concerning that there remains a lack of confidence – amongst audit committee chairs – in the auditor’s ability to identify signs of financial distress. This highlights a critical area which the CPIA is focusing on in our research, including how directors and auditors can provide better visibility on corporate health indicators. As a next step, we will bring together audit committee chairs, alongside other key stakeholders from across the FTSE 350, to better understand these concerns and determine how we can take collective targeted action to strengthen confidence and achieve better outcomes in this area.”

Diverging views on audit value

While a majority of stakeholders recognise the value of external audits, 22% of audit committee chairs expressed some level of dissatisfaction, compared to only 6% of investors and 2% of finance directors. Additionally, a significant portion of investors (20%) expressed neutral views on audit value.

It is positive that over half of investors find audit reports to be very clear and informative, but a significant proportion (40%) describe the reports as being somewhat clear and informative, suggesting room for improvement. The CPIA will seek to engage stakeholders to further improve the clarity of audit reports for all stakeholders, to ensure that they provide focused information and fulfil their purpose of providing users of the reports with the ability to take informed decisions.

The survey uncovered additional insights among stakeholder groups:

  • Investors and Audit Committee Chairs feel that increased transparency between auditors and stakeholders would have the greatest impact on audit value.
  • Finance Directors have identified clearer reporting on key judgements and risks, and real-time reporting of issues, as primary drivers for increasing audit value.
  • Audit Committee Chairs and Finance Directors both cite the importance of assurance over financial and non-financial business model risks, ranking it among the top three factors that enhance audit value for users of corporate information, and for society at large.

Confidence in auditors’ independence and objectivity

The research also uncovers a high level of confidence among stakeholders in auditors’ independence and objectivity, with 94% of finance directors and 84% of investors providing positive feedback. This positive feedback is encouraging, however it does not lessen the audit profession’s responsibility to uphold its independence, both in actuality and public perception.

While the survey did not reveal widespread concern, the fact that investors – a critical stakeholder group for audited financial information – showed the highest level of uncertainty (15% are either not very confident or not confident at all that auditors are maintaining their independence and objectivity during the audit) warrants further investigation. The CPIA, in its mission to enhance the quality and integrity of audit, will seek to address and further examine concerns around conflicts of interest within the profession, to ensure this issue does not erode trust or hinder efforts to deliver high-quality audits in the public interest.

Reasonable assurance on fraud risks

A strong majority – over three-quarters of respondents across all stakeholder groups – express confidence in auditors’ response to fraud risks. However, 15% of investors and 14% of finance directors neither agreed nor disagreed, reflecting a degree of uncertainty or ambivalence about auditors’ effectiveness in addressing fraud risks.

The primary responsibility for the prevention and detection of fraud rests with management and governance of the business entity. The auditor is responsible for planning and performing the audit to obtain reasonable assurance that the financial statements are free from material misstatement due to fraud. The lack of confidence from a minority, however, infers that there is still more work to do.

Katie Canell, Interim Executive Director CPIA, commented: “Audit plays a critical role in the UK’s capital markets by underpinning confidence in Britain’s largest companies and shaping investor decision-making. We’ve seen firsthand how high-profile corporate failures have shaken this confidence, underscoring the need to better protect financial stakeholders and society. Despite progress over the past six years, gaps between expectations and outcomes on audit remain evident, as highlighted by areas of discord in our study. We want to use our voice to constructively challenge the status quo from a position that is both deeply and diversely informed across the PIE audit profession for the benefit of all stakeholders.”

Notes to editors

Methodology

The CPIA commissioned a survey in June 2024, conducted by Censuswide. The online survey represents the view of 100 equity investors and 101 FTSE 350 finance directors.

The CPIA also undertook an additional survey of 35 audit committee chairs.

About the Centre for Public Interest Audit (CPIA)  

[The CPIA is a new organisation that brings together auditors from across the profession to shape best practice and inform the future of public interest entity (PIE) audit in the UK. Its purpose is to drive quality and earn trust in UK PIE audit, in turn helping to build confidence in Britain’s capital markets. Its strength is the combination of its collective expertise to challenge the status quo; the CPIA is action-oriented, forward-looking and seeks to provide objective perspectives on audit quality. A trusted, forward-looking profession mitigates risk, builds confidence and enables investment in UK capital markets.]

For media enquiries, please contact:
E: cpia@edelmansmithfield.com 

[1] Investors – UK equity investors
[2] See Notes to Editors for full details on the research methodology