Quo Vadis – what is the future for our profession?

Jun 03, 2019
There is a crisis of trust in and about our profession, but it doesn’t have to be an existential crisis writes Lynda Carroll FCA.

“It was the best of times; it was the worst of times…” So wrote Charles Dickens in his 1859 novel, A Tale of Two Cities. How apt a quote this is for the world in which we live today, and specifically for the audit and accountancy profession.

Are we not in the best of times? Has there ever been a time when we appeared more omniscient and so integrated a part of commercial life, across so broad a spectrum? A time when scale and reach are valued (by us), when cutting-edge is where it’s at (according to ourselves), when ‘brand’ is everything (we convince ourselves) and when it’s cool to wield so much influence and have such a vast array of client opportunity. Everything from the statutory audit to tax to all forms of consultancy – management, organisational, strategic, merger and acquisition, people, procurement, cyber-risk, risk analytics, diversity and inclusion… the product offering suite seems endless; always expanding and intensely competitive.

Yet, are we not also in the worst of times? There is a crisis, and it is proliferating; a crisis of trust and confidence in and about our profession. It is pervasive; it is not just something affecting practice, but it is in this area that it is most visible, public and controversial – it affects all in the profession, and it is corrosive. Even scary! Is this an existential crisis, or just another challenging phase? The answer to this big question is quite simple: it depends on which of these options we want it to be.

What’s the problem?

Let us reflect on some recent developments that have appeared large in the public domain. When an MP tells one of the Big 4 that “I wouldn’t trust you to audit the contents of my fridge”, as a profession, we have a problem. When we read on an almost daily basis about the failure of names like Carillion, Patisserie Valarie, BHS and see the integrity of their auditors called into question, we have a problem. When we see growing pressure from government and regulatory authorities in the UK to fundamentally restructure the accounting profession, to separate audit and consulting, to introduce meaningful competition and long-term changes to the regulation of audits, we have a problem.

Why do we have a problem? I think it’s obvious, but let’s call it out. It’s a problem because it’s actually happening. It is of our own making; we have lost sight of the fundamental reason why we exist as a profession, what purpose and values we should have, and because it’s time to wake up. “Physician, heal thyself” or the cure imposed will be far more painful than one that is self- administered.

The basis of trust

In the ethical standards we have set for ourselves and our failure to meet them, we will find the basis for the current problem. IAASA’s Ethical Standards for Auditors sets out three overarching principles – integrity, objectivity and independence. These principles are the basis for user trust and confidence. Of these, independence is the bedrock upon which maintaining and demonstrating integrity and objectivity may perish. Who decides if the ethical outcomes required by those principles have been met? The answer – an objective, reasonable and informed third party. To this, in the 21st century, you may add the court of public opinion. Failure to demonstrate integrity, objectivity and independence in a clear and unambiguous manner is at the heart of the palpable erosion of trust and public confidence in the profession.

How did we get here and why are we not ahead of the debate? Why are we not setting the tone of the discussion? How have we ended up in a reactive or defensive mode? Yet, this is how we appear to be, and appearance is reality in the 21st century.

I think it is too easy to say it all got just too big, too multi-disciplinary, too difficult to manage, too many overlaps, too few competitors. It is a bit more fundamental than that – somewhere along the way, we lost connection to why we are here. Financial accounts preparation and audit are not sexy, but they are the reasons we are here. 

Audit, let’s be honest, is a statutory obligation, not an elective option – but it is so for very sound reasons. It is a form of assurance to investors and the public at large that someone with a dispassionate eye has taken a look at the business and formed an opinion which it is willing to state publicly. For that opinion to have any value, reputation is fundamental. Reputation is built on sureness of purpose, values and a governance framework that acts to assure the assurance that the auditor can give.

Communicating our value

So, where to next? In Di Lampedusa’s masterpiece, The Leopard, we are told that in the face of great challenge and turmoil, “if we want things to stay as they are, things will have to change”. 

We need a vision for our profession based on a collective review and recommitment to our purpose and values. We should undertake this review by taking back control of the problem, reaching out to a broad constituency of stakeholders to solicit their view on our purpose and what they expect of us. Because not only do we need to recommit, we need to understand what we need to do to re-engage the public positively and begin the journey of reputation repair and rebuild. If we re-establish the purpose and values that support the auditor and accountant, we will find the answer to how firms need to deal with and manage all the other non-audit and accounting services they currently provide. Lead from fundamentals and the answers to all other questions will surely follow – you might not like the answers, but at least you will know what they are.

This is important for all in the profession – trust and confidence erosion, as I have said, is not solely a ‘practice’ challenge. We live in a world where awareness and action on environmental sustainability and governance (ESG) are lead indicators of understanding and living a business and a social purpose. We know that millennials are 60–80% (it depends on which survey you choose) more likely than any prior generation to want to invest in, work for and acquire product and services from businesses with strong ESG credentials. Governance is all about ethics, so go figure!

We are at the heart of investor and regulatory confidence when preparing and signing off on financial statements, market disclosures, regulatory returns and, as members in practice, we are the fourth line of defence. We need the public to understand the roles we play in each situation – but if we don’t inform them as to what those roles are and how we deliver the outcomes expected, then who will?

Too big to succeed?

Perhaps it is time to realise that the ‘too big to fail’ mindset that framed the reaction to the banking crises could become the ‘too big to succeed’ reality for multi-disciplinary audit and accountancy firms. The big difference in the case of our profession is that few will shed a tear or seek to bail us out in the event of imminent demise.

Looking at ourselves in the mirror in this way will not be easy, but it will be worth it. It is not the default way in which most of us confront a challenge, but if we are to get to a simple answer to the question I asked at the beginning of this article, it is probably the only way. I am reminded of Robert Frost’s wonderful poem, The Road Not Taken, and its final lines:

“Two roads diverged in a wood, and I—
I took the one less travelled by,
And that has made all the difference.”


Let’s not make it an existential crisis. Let’s make it another challenging phase and let’s make a difference.

Conclusion

Finally, I write this article from a personal perspective. I have never practised as an auditor, never been involved in financial accounts preparation or worked as a finance director. However, I am informed by my training in a Big 4 firm, working in financial services, prudential regulation, as an independent non-executive director, and by my enduring curiosity as to the role and purpose of the profession of which I am proud to be a member.
 
Lynda Carroll FCA is the Head of Capital Allocation & Risk-Based Pricing at AIB. 

Was this article helpful?