This week, some 150 members of the ICAEW attended the fourth National Practitioner Forum arranged by the Practice Advisory Board, which focused on exploring the future of auditing. Guest practice editor Mark Lee was on hand to capture the highlights for AccountingWEB.co.uk.
The National Practitioner Forum was another opportunity for practitioners to offer direct input on the ICAEW’s strategy on practical day to day issues.
Chief executive Michael Izza gave the keynote address in which he explained that the purpose of the day was for members to consider the future of audit as a service line given the impact of past, present and future changes in the audit environment. His passion, commitment and real world thinking were evident, and this was reflected in the discussions and debate that ensued.
The event was titled, ‘will you still be an auditor in five years’ time?’, a question that Izza stressed was ‘really important’ to the profession today. He suggested that even if practitioners above a certain age are still auditing in five years’ time, they may be unable to identify successors who are interested and able to conduct audits thereafter.
Of the two million accounts filed at Companies House each year, Izza noted that only about 10% required a statutory audit, with a further 180,000 having a voluntary audit. These figures are much lower than 10-15 years ago, which is of course is a result of the government’s deregulatory increase of audit thresholds.
He also explained that the number of firms of registered auditors had fallen from over 9,000 in the 1990s to less than half that figure today. We also learned that not all of the remaining registered auditors necessarily have many audit clients; some have none at all. The fall in numbers is mirrored in the other CCAB bodies. Indeed, we were told that one body has less than 300 firms carrying out statutory audits, a number that may not be sustainable.
Izza believes that when accountants make audit a loss leader for other services, they diminish the concept and value of audits. He was in no doubt that statutory audits play a unique role in the economy – they help to enforce accountability and promote confidence in financial reporting.
We were reminded that advancing the theory and practice of audit is a core objective within the institute’s royal charter. As such, we need to think strategically about our role in shaping the future and inspiring business confidence.
With regards to the current economic climate, Izza referred us to the Chinese symbol for crisis. Apparently it comprises two elements: one suggesting danger, the other suggesting opportunity.
Effect of market changes
Izza’s speech also noted that EU simplification and the impact of international auditing standards are exerting a profound effect on the audit market, so much so that structural changes are needed to the historic business model for audit practices large and small, with the emphasis very much on the smaller firms.
Significant threats
These were highlighted by Izza both at the macro and the micro (high street) level. Those that stood out for me included:
Macro
Micro – smaller practices
Opportunities
With regards to the opportunities that currently exist, some of his salient points are listed below.
Macro
Micro – smaller practices
Despite structural changes to the exam structure in recent years, Izza recognised that in many people’s eyes the ACA qualification and the ICAEW remain linked inextricably with ‘audit’. He believes that the skill set, judgement and professional scepticism acquired through our training are invaluable but asked an important question: ‘Is audit becoming an increasingly specialised qualification’?
One of the challenges we face is how we continue attracting talented graduates into auditing, and with fewer audits will those who aspire to become auditors secure enough relevant experience during their training contracts?
Later in the day we learned that the number of firms training ACAs has been increasing, although some drop out. In 2007 there were 176 new training firms and 296 new ones in 2008. However, it would seem that about 50% of newly qualified ACAs do not have enough practical experience to continue their careers as auditors. Izza stressed that this is a real issue as it means there are less and less people coming through who can act as auditors in the future.
New clarified international auditing standards
The Auditing Practices Board (which is independent of the ICAEW and chaired by a lawyer) has made the decision that these new standards will be applied for December 2010 year ends onwards. There was considerable discussion later in the day about the impact this would have on auditors and the likelihood that they would have to absorb the implementation costs and any ongoing additional time costs.
The challenge
Izza set the tone for the rest of the event by reiterating the Practice Advisory Board’s objective for the day, which was to obtain delegates’ views on today’s business model and the changes required to ensure that small and medium sized practices develop and are fit for the 21st century.
He ended his speech by stating that firms had shown they were adaptable in the past and could do so again, but this time he was encouraging delegates to do so on the front foot rather than on the back foot.
The implication was clear; there are known developments and changes in prospect. These will have a major impact on small and medium sized practices. Firms that plan ahead will survive and thrive, and the ICAEW wants to help them.
Mark Lee is chairman of the Tax Advice Network [1]
Links:
[1] http://www.taxadvicenetwork.co.uk/index.asp?PageID=10&topID=4