Beyond the Numbers: The Future of the Auditor
The UK’s Department for Business, Energy & Industrial Strategy (BEIS) has recently published a white paper recommending changes to the rules around the way auditors report to the public. If implemented, the changes would place a greater focus on auditors to not only check clients’ accounts but also offer greater insight into a company’s financial risk and resilience. With the audit profession currently facing a talent shortage, the proposed reforms could present an opportunity to make this career path more attractive to new entrants, predicts James Hadfield, audit partner at accountancy firm Menzies LLP.
The BEIS white paper draws on the UK Government’s response to the recommendations from three independent reviews into auditing; Sir John Kingman’s ‘Independent Review of the Financial Reporting Council’, the Competition and Marketing Authority’s (CMA) ‘Statutory Audit Services Market Study’ and Sir Donald Brydon’s ‘Independent Review of the Quality and Effectiveness of Audit’. Some of its recommendations focus on moving the audit process beyond standard reporting, by creating bespoke reports that are tailored to the business in question. Sir Donald Brydon argues that audits should be more informative and user friendly. Brydon also highlighted the need for company directors to play a more active role in the audit process, by offering insights into key areas of risk for the business and future forecasts. Making them more accountable for the audited accounts, will ensure greater sharing of responsibility with the auditor. Another significant change mentioned within the reviews is the proposed introduction of an assessment of the effectiveness of a company’s internal controls, akin to the Sarbanes Oxley Act of 2002 (SOX), which is currently in place in the US. The introduction of this measure could help to mitigate the risk of errors slipping through the system, helping businesses to identify possible insolvency scenarios before it’s too late.
Such changes could reshape the audit profession, by requiring the auditor to examine more than just numbers, broadening the scope of their activities. For example, this could possibly include the assessment of non-financial KPIs, such as a business’ environmental impact and overall resilience. As the role continues to evolve, it is also expected that there will be more of a focus on the technological aspects of auditing. The pandemic has already accelerated the development of companies’ accounting systems and as these become ever more sophisticated, auditors will need to rely on software and other technologies to automate areas of their role.
The audit industry is also facing significant challenges when it comes to recruiting new talent. While giving auditors a broader role would be positive for the profession, it would also create more work within the sector, forcing firms to go on a hiring spree. As the role of the auditor evolves, firms will need to intervene to attract more candidates and nurture development of the right skills in order to avoid a resource shortage.
A number of factors have influenced the reputation of the audit profession over the years. In particular, when corporate failures occur, the finger is often pointed at auditors, who are often scrutinised by the media. Careers in audit currently come with a high level of professional and personal risk, particularly for those in senior-level positions.
Reform within the audit profession could be a step in the right direction when it comes to boosting the industry’s attractiveness. Some of the recommendations currently under consideration could help to rebalance the personal and professional risk faced by auditors. It has also been recommended that auditing becomes an entirely separate profession from accounting. This could help to raise the profile of the profession by requiring new entrants to gain a specific, regulated audit qualification.
As their role develops and they take on a broader remit, auditors could find they are stretched too thinly, potentially leading to more errors slipping through the net. While change is vital for attracting new talent and restoring confidence in the industry, it is important that standards are not allowed to slip as part of this process.