On Tuesday afternoon last (23 Oct 2018), a panel drawn from all stakeholders in the audit market, including auditors from the larger and mid-tier audit firms and business leaders told a capacity audience in Chartered Accountants House that the statutory audit is here to stay and continues to deliver a valued service to investors and shareholders. However, in a climate of increasing regulation of all professions, audit practitioners may have to come up with fresh approaches to remain relevant. The benefits and challenges from the imposition of a tighter regulatory audit regime was also debated.
Session 1: Value of Audit
Lead Speaker: Michael Cawley, NED and Chair of Audit Committee in Betfair Paddy Power, Kingspan.
Panellists:
Michael Cawley
Andrew Keating, CFO Bank of Ireland
Brendan Jennings, MP Deloitte
Barry Dixon, Head of Research, DAVY
Sinead Donovan, Partner GT
Session 2: Future of Audit
Lead Speaker: Pat O’Neill, Partner EY
Panellists:
Pat O’Neill
Kevin Prendergast, CEO IAASA
Ken Bowles, CFO Smurfit Kappa Group
Ciaran Hancock, Business Editor, Irish Times
Pat Cox, NED and Chair of Public Interest Committee at KPMG
Emma Scott, Partner PwC
Over 180 delegates at Chartered Accountants Ireland’s conference on ‘The Value and Future of Audit’ were comprised of business leaders, chairs of audit committees, analysts, and preparers of financial information and practitioners who engaged in a lively debate. They heard that that the statutory audit is at a crossroads, with increased scrutiny on the value, quality and purpose of audit.
The debate ranged over a wide range of audit related issues including:
The need for greater competition and choice in the audit market and the impact (or not) of the recently introduced EU audit reforms;
the societal needs from the statutory audit and whether the audit as currently designed was capable of meeting them;
the impact of regulation on the mind-set of auditors and the attractiveness of audit as a professional career.
While competition between the larger audit firms is significant, there was an acknowledgement that there are currently too few players in the PIE audit market sector. Possible remedies to this that are currently being debated in the UK include:
audit only firms;
market share caps;
joint or shared audits;
total prohibition of provision of non-audit services to audit clients.
However we need to be certain that any local remedies are responsive to the particular market in Ireland and also sensitive to the risks of unforeseen consequences. It is not at all evident that these proposed remedies were necessary or relevant in Ireland.
Speakers argued that the so-called expectation gap was only partially real. In their experience consumers of audit services, practitioners, regulators, audit committees, boards and analysts all understand the limitations of a statutory audit. However some challenges are less understood in other quarters. In addressing this gap in perception, the choice is either change perceptions through engagement and communication, or move to meet those expectations and change the audit model.
If statutory audit is not meeting the needs and expectations of society then clearly it needs to change. However, debates and discussions about the nature of such change need to begin from informed positions about what audit currently delivers and the challenge it provides before exploring how it might evolve into the future. Panellists suggested that some commentators want assurance on businesses that an audit as currently designed can’t provide, and it is up to the profession to communicate the function and limitations of the statutory audit as a foundation for an informed debate.
Speakers argued that, if one of the desired outcomes of the new EU rules governing audit is to avoid binary, pass/fail audit opinions in favour of richer, more nuanced reporting, then the imposition of tighter regulation will have the contrary effect. In a highly regulated environment the fear would be that the real problems are ignored and instead practitioners just concentrate on being seen to comply with auditing standards instead of adding insight and value.
Over-regulation could in fact lead to audits having an increasingly technical focus instead of offering judgement and opinions on points of improvement. This in turn could impact the attractiveness of the profession to high-quality people and its very sustainability.
Delegates heard that the audit needs to innovate in order to add value and offer deeper judgement and insight on structures of the business and business model. One example of innovation put forward concerned how financial results are portrayed in annual reports, and these could be communicated in a more transparent and accessible manner.
Final remarks at the conference went to Irish Times Business Editor Ciaran Hancock, who gave a valuable external perspective. Drawing attention to recent controversial business collapses where the performance of audits was brought into question, he suggested that the profession has to acknowledge when things go wrong. It is the duty of the media to investigate, and the reality is that interest in audit will only be generated when issues arise. Auditors should also have a clearer sense of their accountability to society, and need to significantly improve how they currently communicate. Mr Hancock said that there are issues with how the outcomes of audits are presented, and simpler, plainer English should be adopted.
Deputy President Conall O’Halloran who chaired the conference said:
“The idea of this event was to hear from a range of stakeholders who have an interest in statutory audit.
“Ultimately, statutory audit is a global service and any remedies to address current problems, real or perceived, must be global. However, for Chartered Accountants Ireland to be able to provide informed comment on the future direction of the statutory audit, events like this are important.
“The Institute will now consider the range of views heard in formulating its own contributions to the current debates on the future of audit”.
Photos of the Audit event are available here.