The audit of today has not kept pace with society’s expectations.
Over the past 12 months, we’ve seen headlines, challenges and scrutiny over the role and value of audit.
Valid concerns have been raised in the wake of events such as the collapse of Carillion, and multiple reports have been commissioned from various independent, parliamentary, and regulatory bodies into how it needs to evolve.
Clearly, there is a pressing need to change – particularly to deal with the lack of trust that now exists when it comes to audit.
This matters, because audit plays a crucial role in underpinning confidence in businesses and the capital markets. This in turn drives economic growth, trade, and prosperity.
Today’s statutory audit was originally designed to provide assurance over a company’s performance and financial position. This is still critically important. Often, the people that own the company – the shareholders – are separate from the management. Those people could be institutional investors, like pension funds representing the life savings of millions of hardworking people.
And the auditors and audit committee are the last line of defence against materially misstated financial reporting.
This begs a number of important questions. What should audit look at? Who is the audit intended for? Is a one-size-fits-all approach appropriate?
As business has become ever more complex, digital and global, audit too needs to adapt to the modern world.
Those of us working to deliver audits day-in, day-out naturally have ideas about how it could evolve in order to reestablish trust. However, this is not something that we can or should undertake by ourselves.
This is why PwC launched an open discussion on the future of audit back in November. We’ve gathered hundreds of points of view through roundtable events, meetings with senior business leaders, investors and other interested parties, an online forum, and a survey of business leaders and investors.
The results are now in, and what has struck me is the sheer diversity of views – not just on the solutions, but even on which issues need addressing.
One of the most significant insights is the investment community’s feedback – only 41 per cent of those surveyed feel that today’s audit meets their needs.
This is a clear signal that change is overdue, with respondents wanting more information about a company’s future prospects and the risks it faces, so that audit can give investors comfort that the information they receive from a company can be relied upon.
Working with regulators, businesses, and the profession itself, there is an opportunity to develop the statutory audit to provide more insight – including the scenarios in which a business model could fail – giving stakeholders a clearer picture of the risks that could lead to failure, so they can make informed decisions.
Our forums highlighted other areas of opportunity for change, including strengthening the clarity and relevance of corporate reporting; enhancing the reporting and auditing of a company’s internal controls; providing more insight about the material uncertainties facing a company; and strengthening the culture of challenge in audits.
These will require changes to corporate reporting and the regulatory environment, as well as extending the scope of audit.
While it’s important to contribute to the wider debate about the future of the corporate reporting system, I also recognise that we must continue to do all we can to strengthen our own audit work. This means the right culture and governance, supported by the right people, technology and processes.
Audit is at a tipping point. Just as it has evolved before, so it must do so again. The needs of all stakeholders need to be considered and fairly represented if audit is to remain relevant and rebuild trust.
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