Save content
Have you found this content useful? Use the button above to save it to your profile.
Engineer plugging CPU microprocessor to motherboard socket

Do we really need audit reform to change the profession?


Instead of waiting for reforms, auditors can take matters into their own hands today and improve quality by focusing on innovation, process and technology, writes Dudley Gould.

25th May 2022
Save content
Have you found this content useful? Use the button above to save it to your profile.

After it was widely reported that long-awaited audit reforms would be dropped from the Queen’s Speech, when the day came they were surprisingly included – albeit via a brief mention and with no timeline of when the changes will actually be enacted. 

But for the auditor profession, the aim shouldn’t be reform itself: it’s improved audit quality, which is essential for stakeholders to have trust in the financial markets, which in turn allows it to operate efficiently.

Will reforms improve quality?

The Draft Audit Reform Bill related to the Queen’s Speech covers reforms associated with a new regulator – the Audit, Reporting and Governance Authority (ARGA) – plus shared audits and recognising the largest private companies in the definition of public interest entities.

It’s questionable how much of an impact the new regulator will have and shared audits are not without their criticisms. So instead of waiting on reforms, we should instead seek to improve audit quality and drive the profession forward by focusing on innovation.

Innovation more important than reform

By adopting audit tech and analytics tools, innovation can play a much more significant part in improving audit quality than reforms. 

While technology was mentioned in the Brydon report, it is not mentioned in the draft Bill related to audit reforms. Technology can help overcome the limitations of human capabilities of reviewing data and is more efficient and cost-effective due to leveraging automation capabilities to generate insights and identify outlier transactions that require further inspection.

An example of efficiencies from an analytics-led approach is tracing transactions to client bank statements. As a manual process, this can take hours but new analytics tools automate the verification of all cash activity in just a few seconds. 

Short-term challenges

That said, it is still important to consider challenges associated with audit tech tools that may undermine their effectiveness in the short term. 

Access to clean data in standardised formats is still challenging, especially when it comes to enterprise resource planning (ERP) systems. However, the introduction of open banking now means we are starting to see several audit software service providers being able to access a complete and live set of independent banking data, obtained directly from source bank accounts.

This means auditors can continue to access verified banking data after the year end date to ensure the going concern status and identify post balance sheet events. 

Tech skills and evolving methodologies

Another area that will need to be addressed is upskilling auditors with data analysis skills. This will enable them to generate and interpret deep insights into data, which could lead to further interrogation and conversations with clients. 

Encouragingly, the main accounting bodies in the UK are already putting steps in place to include related content for their core qualifications alongside continuing professional development (CPD) courses.

The Institute of Chartered Accountants in England and Wales’s ACA qualification now has an analytics focus and they have also created a Data Analytics Certificate Programme for more advanced finance professionals.

There is also work to be done to better understand evolving audit methodologies and how these can improve audit quality and efficiencies. 

To agree on what these should be and how they can make audit fit for the 21st century, it’s essential to generate discussion across various stakeholders, including practitioners, trade bodies, software vendors and policymakers.

Innovation will outstrip regulation 

It’s probably an understatement to say that audit reforms are moving at a snail’s pace. The first audit reform paper was published three years ago, the government consultation closed last year and the proposed reforms have only just been published as a draft bill.

Innovation is moving along at a far greater speed and firms waiting for reform are likely to fall behind. Over the past few years, we’ve seen the emergence of cloud, open banking and blockchain – all of which are set to play a significant role in the future and all of which are not considered in the reforms.

Despite slow progress, it does feel like the industry needs to see the proposed reforms implemented to move the conversation on. In terms of government priorities, there is always something more urgent that needs addressing, but in the meantime, auditors should seek to improve audit quality themselves by innovating and adopting new tools. 

Replies (3)

Please login or register to join the discussion.

By Hugo Fair
25th May 2022 11:25

All the innovation and technology in the world won't change a thing whilst the culture remains as 'do the least work' to 'not rock the boat' in order to 'keep on friendly terms with the profit generators'.

It's the objectives and penalties that need to change ... not the operational mechanisms.

Thanks (4)
Replying to Hugo Fair:
By Justin Bryant
25th May 2022 13:39

Yes. The author of the above article has missed the fundamental nature of the problem entirely (assuming it's just a marketing piece, that's perfectly understandable of course).

Thanks (0)
26th May 2022 10:48

No amount of money or technology or reform can purchase independence.

Thanks (0)