The drive to make auditors act more independently of their corporate clients should be seen as an opportunity, not a threat, says Jane Fuller
This article was first published in the September 2018 UK edition of Accounting and Business magazine.
This year has seen a surge in public concern about audit following the collapse of Carillion and tougher regulatory action against firms. This has happened against a background of reforms designed to make auditors act more independently of their corporate clients: a cap on non-audit fees; re-tendering of audits within 10 years; extended auditor’s reports to shareholders; and calls for an increase in professional scepticism and challenge of management.
The reforms have further to run but two reviews – of the Financial Reporting Council by Sir John Kingman and the audit market by the Competition and Markets Authority (CMA) – are likely to add to the agenda for change. In particular, the CMA has been asked to consider whether a wedge should be driven between audit activities and the business consultancies run by the big professional services firms.
One aspect of the debate that intrigues me is the cultural difference between auditing and consultancy. All accountants should act with professional skill and integrity, but audit is a heightened version of this because of its ‘public interest’ role in the smooth functioning of capital markets and in checking on businesses that affect the public.
This gives rise to the notorious expectations gap – or should that be an investigation gap?
My hope is that the current annus horribilis will inspire talented young people with a sense of public purpose to opt for careers in audit. They would be motivated in a similar way to those who choose journalism rather than public relations or marketing.
Simply put, they have an investigative instinct and a sense of duty to users of the public accounts. Indeed, I’m sure many auditors do feel this way and would like to be better appreciated for it.
In this scenario, audit would sit well with forensic accounting, insolvency work, due diligence and tax investigations. This would be aided by advances in data analytics, which have the potential to reduce grunt-work and better identify transactions that need probing.
Coupled with the variety of companies and sectors – public as well as private – that form the audit universe, the argument that recruits will be bored is not very convincing. Maybe ‘audit and investigations’ will remain in the same federation as other business services (just as journalism sits under the same roof as advertising), but those involved will be much clearer about their fundamentally different purpose.
The words ‘public interest’ and ‘culture’ are bandied about, but they do actually present a serious challenge to the status quo. This should be viewed as an opportunity not a threat.
Jane Fuller is a fellow of CFA UK and serves on the Audit and Assurance Council of the Financial Reporting Council. The views expressed here are her own.
"My hope is that the current annus horribilis will inspire talented young people with a sense of public purpose to opt for careers in audit"