The recent spate of corporate failures in the UK including construction firm Carillion, high street stalwart BHS and travel company Thomas Cook has sparked a new crisis of confidence in the value of audit and the work of auditors. Last month, former London Stock Exchange Chairman Sir Donald Brydon released the latest in a series of governmental reviews of the quality and effectiveness of audit.
While Brydon did not opine on some of the more controversial proposals previously put forward, such as the joint audits proposed by the Competition and Markets Authority in April 2019, his report nonetheless proposes extensive reforms which he hopes will restore confidence in audit and increase its usefulness to the public. These include separating audit from the accountancy profession and a adopting a new, broader definition of audit’s responsibilities with a greater emphasis on fraud detection and providing a more forward-looking assessment of companies.
The future of audit work
The separation of audit from the wider accountancy profession is a new proposal which acknowledges that the skillset required of an auditor and the nature of their work is different from that of their current colleagues. With global technological developments currently advancing at pace, accountancy work - much of it deemed, perhaps unfairly, to be routine, repetitive and clerical, is often cited as one of jobs at greatest risk of automation. The current levels of automation in tax compliance work alone provide some indication that this trajectory will only continue.
Auditing, however, has always purportedly relied on a greater element of professional judgement in reaching decisions related to the accuracy and fairness of figures. The work requires skillsets which are not as easily automated. Problem solving, critical thinking, communication and increasingly, IT acumen and programming skills are sought after.
Forming a new auditing profession may be useful in articulating more clearly what the role entails and the skillsets it demands. This could help address the shortage of graduate entrants to the profession, which is currently not seen as attractive as some other career options.
A new professional identity
Whilst Brydon has not considered the consequences of technology in his review, it is difficult to see how audit can be redefined without evaluating the impact of technology. Currently, we see technology being used to automate the more routine aspects of audit work. But alongside this are developments which have the potential to change audit more fundamentally.
Increased focus on the identification of risk areas, more powerful ways to interrogate corporate data, and accessing data on a continuous basis could provide the scope to re-imagine the profession altogether. Audit could become a real-time assurance provider, an IT based verification solution or even merge with other risk assessment agencies. The establishment of a standalone auditing profession may serve to accelerate developments along these lines.
History, however, reminds us that we have been here before, and that the UK’s experience of audit is not unique. From cycles of failure and reform and even the use of technology for standardisation, efficiency and quality purposes, auditing has had an uneasy history. A solution to decades-old problems with public trust will not be easily achieved. Brydon recommends a follow-up review in 2025. Given that the UK is often seen as a leader in regulatory reform, this review will be closely watched not just in the UK, but around the world.