This article was first published in the May 2016 UK edition of Accounting and Business magazine.

Despite all the efforts to turn the idea of auditing into something dynamic, exciting and radical, the project seems doomed to failure.

Researchers all around the world have been beavering away to try and find out why. ACCA, in partnership with accountancy firm Grant Thornton, has published the insights from a series of roundtables in seven countries on the future of audit. And the Financial Reporting Council (FRC) has published two studies it commissioned, along with ICAS, into the skills that will be required in the audit of the future, and how capable and competent auditors were perceived to be around the global business world.

The results of all this effort are sometimes perplexing. For one thing, the ACCA/GT report found that audit was valued far more highly in countries where it was seen as still developing than in countries where it has been long established. In the FRC research, auditing was seen as having lost its lustre as a destination career. The diminishing importance of audit as a proportion of major accountancy firms’ revenues means ‘the skills and attributes associated with quality auditing become less identifiable as defining characteristics of the firms’ (see ‘Big Four balance’, page 16).

There is a clear divide. As the ACCA report says: ‘In countries where audit is less developed the view is clear: audit is an enabler of growth. It underpins market confidence, reduces the cost of capital and transaction costs, boosts capital flows and serves as a cornerstone for the business environment.’ In developed countries, on the other hand: ‘Audit is seen as a critical bedrock for larger companies, but with little additional value other than confirmation of what is already understood about a business.’ In the latter environment the question is whether the audit report is useful and, if not, whether it should be scrapped or replaced.

Even when the roundtables turned to real-time reporting, sharp disagreements emerged. In Brussels, one comment was: ‘Boards are now asking for more real-time information that has a level of assurance built-in.’ But one of the comments in Singapore was: ‘Real-time information risks short-term decision-making and ignoring long-term value creation.’

Corralled by compliance

Meanwhile the FRC research suggests that regulators’ efforts to drive up audit quality have made things worse, creating ‘a highly regulated audit environment’. That may sound like a good and secure objective, but the research found: ‘Auditors were of the opinion that their response was compliance behaviour, as their firms became more risk averse.’ This in turn had spawned two types of audit: compliance and assurance-driven. The first concentrates on ticking the right boxes, and the second expresses an opinion.

The same went for how current regulatory trends simply produce stacks of dense documentation. One participant complained about the ‘fixation of the regulator on documentation’. And that again did not enhance the prospects of attracting bright folk into auditing. ‘Regulation makes the job much more boring,’ an audit firm partner in the UK pointed out, their weariness obvious even on the printed page.

We are back in the territory of unintended consequences, the perennial location of any debate about audit. The ACCA/GT research concludes: ‘Marginal gains in audit quality may not be worth the additional effort required to capture them, so standard-setters and regulators need to articulate the business benefit of changes.’ That, as history shows, is very hard to do.

The FRC research pinpoints a shift in balance between the auditor and the company they are auditing. Some think developments in accounting have left the auditors behind. ‘The auditor is no longer the accounting expert,’ was one comment.

This perception that experts in the company often had greater expertise with accounting standards than the auditors brought up another concern: the client would be better than the auditor in arguing any particular case, which could in turn put pressure on the auditor’s judgment. On the other hand, one participant, presumably mindful of the traditional characterisation of the auditor as an obsessive nerd, said: ‘In a way I would argue that too much accounting knowledge makes you a worse auditor.’

Bereft of guidance

And that is another aspect of auditing that the research confirms. Auditors, their clients thought, were still stuck in compliance and not producing enough advice or what the auditors would call value-added. The report puts it like this: ‘Auditors were criticised for their inability to provide guidance to management about improvements to their business and insights based on industry and cross-industry trends which could promote improvements within businesses.’

We are back again to one of the longest-running arguments in audit: why don’t auditors provide more advice to management alongside any strictures about compliance? One chunk of the research suggests at least part of the answer: audit should not be such a prized specialism, and audit teams need expertise from elsewhere. ‘Instead of audit firms training auditors to become specialists, firms will also be training specialists to become auditors,’ was one suggestion.

You could argue that all these often contradictory research findings simply make the direction of any future action much harder to discern. But that is, in a way, the value of such research. When it is based on talking, in roundtables or focus groups, the views come back as authentic concerns and ideas. Whether the culture of audit needs to be radically changed or just fine-tuned, it is these sorts of insights that should be the starting point.

Robert Bruce is an accountancy commentator and journalist