David McBain CA: Restoring faith in audit
A good-quality audit is vital to maintaining trust in the market
The audit profession has come under increasing scrutiny following recent high-profile business failures which, for some, have shaken their faith in the discipline of audit.
The standout cases, including those of Patisserie Valerie and Carillion, have quite rightly prompted tough questions as jobs have been lost and creditors have suffered. How did this happen? Why did this happen? Who is to blame?
A good-quality audit is vital to maintaining trust in the market, so this is a natural and practical response - and one which is mirrored within the profession itself. Such examples therefore serve as a learning tool to continually progress and improve the sector, which often needs to reconsider methods in the face of changing regulatory requirements.
The importance of an audit has been undervalued in recent years for a number of reasons and the manner in which audit firms compete against each other can often hinder efforts to change that and celebrate the profession as a whole.
It’s therefore important for professional firms to demonstrate a positive culture whereby values, ethics and the public interest are at the core of what they do – with high standards of quality and ethics always taking precedence over efficiency measures.
It's important for professional firms to demonstrate a positive culture whereby values, ethics and the public interest are at the core of what they do
Companies that decide to choose price over quality will, in turn, drive some audit firms to enter into a race to the bottom simply to win more work at lower fees, undermining the value of the profession and placing more emphasis on price than the need to provide high-quality work and service.
Despite perception, auditing is not a mechanical process and it requires significant professional judgment and a sense of responsibility. It’s important, therefore, that auditors challenge management’s judgments and do not compromise on what they believe to be the right treatment to deliver a true and fair view.
At Johnston Carmichael, the retention and development of our audit professionals is key to providing quality work as we believe the necessary skillset is honed over a period of time.
Firms with a high turnover of staff can often find it difficult to deliver continuity in their audit quality.
Similarly, developing individuals’ strengths in specific industry sectors is key to creating a well-rounded firm. Dedicated sector knowledge can elevate the reputation of a firm and undoubtedly improves audit quality through greater insight into the relevant issues and dynamics.
Developing individuals' strengths in specific industry sectors is key to creating a well-rounded firm
Incorporating specialist technologies and analytical techniques into day-to-day working has allowed our firm to gain a better understanding of our clients. We can now review 100% of data – instead of using traditional sampling means – enabling a more holistic approach, rather than a smaller snapshot, so the audit evidence we gather is much more detailed and our work is more insightful.
There is no single solution to restoring the belief and trust in audit quality but if firms commit to collaboration and learning from past mistakes, alongside developing a culture and practice of continuous improvement, the audit profession can go a long way to restoring public confidence.
The recently announced Brydon review into the quality and effectiveness of the UK audit market should therefore be welcomed as an opportunity to establish a more successful and sustainable future for the audit profession, with rewarding career opportunities for new generations of auditors, while restoring trust in the audit process.