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What about the culture of the auditor?

Earlier this month and as a follow up to its 10th year anniversary event, the Audit Quality Forum (AQF) organised a panel discussion on whether business can ever achieve the right culture. However as the debate went into the role of the auditor, panelists fell short of tackling one of the most important questions: the culture of the auditor.

The AQF was formed in 2004 at the instigation of the UK Government. It is supported by ICAEW, UK Financial Reporting Council and the UK Department for Business, Innovation & Skills. The AQF mandate is to encourage open and constructive dialogue about issues which are in the broadest sense related to audit quality.

At this month event on culture, the panel was composed of individuals with a wide range of backgrounds: from a comedian to an army brigadier, from a former COO to an academic and a representative of the investors' community, as well as a representative of the profession.

This diversity was in the spirit of the night's debates which sought to address the need for businesses to think about their culture through the empowerment of their staff and embracing diversity, not only of gender but of thoughts and backgrounds.

Carla Stent, former CFO and COO at Barclays and currently a non-executive director in a number of companies including JP Morgan Elect plc; Sacha Sadan, director of corporate governance at Legal and General Investment Management; and Sacha Romanovitch, CEO at Grant Thornton UK, were in a way the closest professionals to the business world out of all the panel members and as such made the business case for culture.

All three argued that culture comes from the tone at the top and that instigating the right culture in a business is key to generate financial benefits.

"Businesses that pay attention to strategy tend to drive the market, businesses that don't pay attention to strategy tend to underperform the market and businesses that pay attention to their strategy and culture tend to outperform the market, it makes business sense," Romanovitch summarised.

Every business has a culture, she continued. "It is whether it is a culture that is actually productive so that you make sure that good people do good things."

Sadan said that when you are a long term investor it is frustrating to see corporate clashes such as the recent ones at VW or Sports Direct.

"Culture can be measured, it is hard but there are great people who do good work in that sphere," he said. "These things get measured slightly differently and we would like them to be measured consistently, that is where audit can perhaps come in."

Richard Young, a freelance writer and presenter, who was chairing the panel, asked what is the one useful thing auditors could do to improve culture at the audited company.

"A board of a company shouldn't have to go and pay a consultant, we pay the average CEO around £3m a year we would like them to be doing this as part of their job," Sadan said. "But auditors can help and challenge in the audit report."

Romanovitch said that the auditors shouldn't approach culture through a checklist but should get under the skin of the matter.
She hinted that while external auditors could make an initial observation it might be more for the internal auditor to look at things like the stories that are told around the work place, and the symbols in the physical environment. For example, she mentioned that she had once been told of a bank where the CEO had his own lift.

"So you need to deconstruct, analysis and help people understand what these symbols mean and in the context of what their business is trying to achieve are those things appropriate or not," Romanovitch said. "I wouldn't go down the check list route."
Stent added that while the view of the auditor would be useful, she feared that if culture work was in the external audit remit, it wouldn't bring the right answers as people in the organisation would be fearful to what they say to the auditors. This therefore would reinforce the negative aspects of the culture in place, according to Stent.

"I think an informal feedback to form an opinion would be useful," Stent said. "I also think that at the smaller companies auditors wouldn't be able to really get underneath the skin of what the culture is within a one or two week framework. So I'm more a supporter of using internal audit to do that with some informal views form the external auditors."

Throughout the evening, using an app the audience could send their questions and comments which were projected on a screen behind the panel and occasionally picked upon by the chair.

As the debates drew to a close a comment and a question of significant relevance to the accounting profession were left unanswered.

The comment from an anonymous person in the audience read that all that was said during the evening was a déjà vu, "we keep revisiting the same issue time and time again and this time we call it culture. The focus should be on accountability sadly we have a crisis of accountability not culture".

The question, also from an anonymous person in the audience, was perhaps even more telling: "What about the culture of the auditor?"

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