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Abstract This is a briefing by the author on his PD Leake lecture given at the Chartered Accountants' hall earlier in the year. In it he examines the rise and rise of the risk industry and assesses the changes it has wrought in business life. He argues that unless the rise is halted we will see the retreat of socially valuable intelligence from the public domain.
Keywords Financial reporting, Risk management, Regulation, Internal auditing, External auditing
The background
I recently decided that there was no longer space to store 20 years worth of Accountancy and Accountancy Age. Prior to disposal I reviewed all the back issues for articles of particular note worth saving. In the course of this process, a number of things were striking. First, articles on financial reporting were conspicuous in the 1980s, and in the 1990s it was auditing which seemed to be the main object of discussion. Second, risk and risk management begin to receive regular exposure only from about the mid-1990s onwards. In particular, the late 1990s reveal an increasing commentary on practice management and risks to professional partnerships.
This review was not a formal content analysis and the observations are impressionistic. However, the recent accent on risk management by accountancy practices provides the point of departure for this lecture.
The audit risk model, as an idea if not a concrete practice, can be traced back to the 1980s. In time this developed as business risk auditing (BRA) with different firms offering proprietorial variations on the same theme. Of particular interest in this methodological development is the manner in which "audit risk," originally conceived in terms of the risks of client business (subanalyzed into control risk and inherent risk) and the risks of the audit process (sub-analyzed as sampling and non-sampling risk), came to be understood to include the risks to the auditor him/ herself. In short the primary risk, that the financial statements are materially misstated, has come to be thought of also in terms of a secondary risk, the risk of financial and reputational losses to auditors themselves.
Recent professional preoccupations with practice management, quality control and client selection processes are a further reflection of this. Changes in the regulatory environment for the accountancy profession, the...