Sandy Manson CA: Change is upon us
The professionalism, integrity and objectivity of auditing faces ever increasing scrutiny. Inaction is not an option, according to Sandy Manson CA.
Just over a decade ago, I was eagerly looking forward to a new professional challenge as I was appointed Chief Executive of Johnston Carmichael. The UK economy had seen many years of apparently sustainable growth. I was clear on my 100-day plan and had a great team to work with. What could possibly go wrong?
Within months, we witnessed the incredible scenes of people queuing outside Northern Rock branches in what would prove to be a forewarning of the chaos to come.
Little did I expect we would have to steer our business through an extraordinarily deep and damaging banking crisis, followed by a long recession. Then along came a Scottish independence referendum, followed by Brexit. Interesting times indeed!
It is the whole reputation and standing of the profession that’s at stake.
Now in our profession we face further challenge through an increasingly high-profile and public debate about the Big Four’s dominance of auditing FTSE companies. Market concentration is something that clearly needs to be monitored to ensure it doesn’t work against the public interest and the markets.
There are many registered audit firms in the UK and an intense spotlight is on four of them. Audit quality is, of course, one of the key areas of focus but when this is combined with such market concentration, it creates an intolerable combination in the eyes of the public and, increasingly, the investor community.
I have always admired the strength and diversity of our profession and have never viewed this debate as something that affects only the Big Four. It is the whole reputation and standing of the profession that’s at stake.
Firms of all shapes and sizes have a critical role to play in strengthening our economy and society. Whatever our organisational diversity, professionalism, integrity and objectivity are ethical principles which bind us all.
Advances in technology offer huge opportunities to improve the efficiency and effectiveness of auditing. Any changes now need to address this digital revolution.
There was no easy solution in 2014 and there is no easy solution now.
It’s the charge that commercial interests are being put before professional judgement that we should all find most concerning. We can’t ignore this and need to address it urgently. We must put our judgement ahead of commercial interests every time. Reputation is a glass ball; drop it, and it shatters forever.
The issues are clearly identified. Solutions are more elusive and need balanced thinking. We need to do all we can to avoid a knee-jerk reaction, which weakens our firms, our profession and our economy. Achieving some short-term political satisfaction would not serve the public interest. Equally, taking no action is not an option.
There was a review of the audit market as recently as 2014. There was no easy solution then and there is no easy solution now.
I am encouraged that the Big Four and the other larger firms are proactively looking at taking steps to address the serious concerns raised. ICAS will do all it can to help find and support long-term solutions of substance.
The other challenge we have is addressing the expectation gap between what an audit is perceived to achieve and what it, realistically, can achieve. We need to explain the vital role audit plays in society, especially in relation to the effective functioning of capital markets.
Right now, the opportunities for other firms have never been better. The current debate can only spur smaller but ambitious firms to grow their capability. It is also important that we identify any barriers that exist to achieving greater competition in the audit market.
A tsunami of change is upon us. The profession needs to embrace this change and adapt now.