Auditors in the United Kingdom are being directed to be extra vigilant for fraud as companies may be tempted to manipulate their numbers during the transition to international accounting standards.
The Institute of Chartered Accountants in England and Wales (ICAEW) is warning auditors to be on the lookout for inaccuracies and to refuse to sign off on accounts if necessary, the Financial Times of London reported.
The first set of accounts under the International Accounting Standards Board (IASB) rules may be questionable in some cases because companies must restate their opening balance sheet. Companies also have more accounting treatment options and they can make increased use of fair or market value in the valuation of assets and liabilities.
"Auditors need to ensure that their work remains of the highest quality and that they use their professional judgment and professional scepticism," said Andrew Ratcliffe, chairman of the ICAEW audit faculty.
The ICAEW is set to issue guidance on Monday for auditors and for companies about the implications of the transition to the IASB standards, which companies must use for their 2005 accounts.
Ratcliffe said companies are behind in their preparations, so auditors will most likely need to qualify some companies’ books. No doubt some companies’ 2005 annual reports would be late for the same reason, he said.
Auditors are being warned to resist pressure from management to overlook concerns because investors respond poorly to late or qualified accounts. Also, auditors are being told to maintain their independence as companies ask for help in making the move from national to international standards.