Following the release earlier this year of a white paper publication from The Department for Business, Energy & Industrial Strategy (BEIS), it has been recommended that the rules surrounding the way auditors report to the public should change. Said adaptations would mean auditors give deeper insight into a firm’s financial resilience and risk rather than solely focusing on only checking clients’ accounts. These changes could mean that the profession, which is currently facing a talent shortage, is more attractive to new to entrants.
THE GOVERMENTS RESPONSE
The 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’ are drawn upon in the BEIS white paper. Within the reviews, a significant change detailed is the introduction of assessing the effectiveness of a company’s internal controls, like the Sarbanes Oxley Act of 2002 (SOX), in place in the US. Through introducing this measure errors slipping through the system would be reduced, assisting businesses in identifying insolvency issues before it’s too late. Another change highlighted by Brydon is the requirement for a more active role of company directors during the auditing process as they can establish future forecasts and key risk areas for the business while also increasing their accountability for audited accounts rather than the auditor carrying full responsibility. Lastly, Brydon also presented his view that audit reports should be more user friendly and informative. 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.
The implementation of the mentioned changes could revolutionise the audit profession, broadening the scope of auditors’ activities past purely examining numbers. For example, including an assessment of a business’ overall resilience, environmental impact and further non-financial KPIs. Following the evolution of audit, it is also expected that there will be a closer focus on the technological aspects of auditing. The pandemic has accelerated the development of companies’ accounting systems making them more sophisticated than ever and auditors will now need to rely on software and other technologies to automate areas of their role.
Finding new talent in the Audit industry is an on going challenge
A significant challenge of the audit industry is recruiting new talent. If firms wish to avoid staff shortages they will need to intervene to attract more candidates and nurture development of the right skills required to accommodate the evolving role of the auditor. Firms will also be required to hire more staff due to the broader roles suggested for auditors, a positive for the profession due to the increased workload for the sector. The reputation of the audit profession has been influenced by several factors over the years. Auditors are often blamed when corporate failures occur and are left 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.
Some of the recommendations currently under consideration could help rebalance professional and personal risk faced by auditors. Reform within the audit profession could be a step in the right direction when it comes to boosting the industry’s attractiveness. 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.
More errors could slip through the net for auditors if they find they are stretched too thinly as the role develops and they take on a broader remit. Despite the vitality for change, to ensure both new talent is attracted to the profession and the confidence in the industry is restored, it is important that standards are not allowed to slip as part of this process.