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In review 2019 & 2020 expansion plans

Bernard Agulhas, IRBA

The state of the profession in 2019

In South Africa, given widespread corruption in both the public and private sectors, and an increasing number of governance failures, it is clear that the country has been beset by a leadership crisis in recent years, where commercial and self-interest has taken precedence over ethical leadership and public interest.

As a result, public criticism of accountants and auditors continues; however, the IRBA believes the current business failures may not always be audit failures, and that there is significant reason to believe that corporate governance has contributed to recent business failures. 

As the audit regulator, the IRBA has responded by broadening its focus to highlight its concerns around the financial reporting chain, including concerns of the independence of boards and audit committees, and the responsibilities of boards and audit committees to exercise professional scepticism and hold management to account.  It has also concluded a number of projects which will assist audit committees with increased insight into audit firm quality.  

It has launched Feedback Report on Audit Quality Indicators. This report provides feedback on a set of measures that audit firms reported on to the regulator, and also provides audit committees with insights relevant to the appointment, performance, independence and reappointment of the auditor.

The report was launched on the IRBA website in December, and is the culmination of a project started by the IRBA in 2017, as part of the IRBA’s restoring confidence efforts. We believe it is one of the first of its kind globally.

The IRBA has also called for Audit Firm Transparency Reports on a voluntary basis and in the last year, a number of firms have published such reports to assist the market to understand the firm’s operations, governance, ethics and quality. 

As a result of these initiatives, and others in the IRBA’s restoring confidence strategy, we are confident that the perception of the profession will improve. Furthermore, the profession has responded positively and if the improvements proposed by the firms are implemented, then audit quality will improve. A turnaround in the state of the profession is possible with the cooperation and participation of all parties.

Two other initiatives of importance include a proposal to the Treasury to regulate all role-players in the financial reporting chain, and not only auditors – a comprehensive regulation model – and proposed amendments to the audit legislation which are currently before parliament.

These amendments will provide the IRBA with more powers to conduct its investigations and provide for increased monetary sanctions levied on auditors for misconduct.

Challenges and what is in store for 2020

The profession has been challenged by the public’s expectation of the auditors to identify fraud and has consequently been heavily criticised as a number of corporate collapses due to fraud have been exposed in the media.

While the audit standards do not require the auditor to uncover fraud, given the high levels of corruption, auditors should in the coming year consider the increased risk of fraud in the prevailing corporate culture.

The appropriate response would be to strengthen professional scepticism and pay specific attention to procedures to manage the risk around the possibility of fraud.  

The IRBA is reviewing the competencies required of auditors and it is considering whether auditors should have specific competencies in the area of identification of fraud. In the short term, this may require specific continual professional development to upskill, but may require changes to the curriculum. Other changes to auditor competencies which are widely discussed at the moment include a response to 4IR and disruptive technologies.

We will also be adopting the new Quality Management Standards (International Standard on Quality Management 1 and 2) once they are finalised by the International Audit and Assurance Standards Board of the International Federation of Accountants, the improved Risk Standard (International Standard on Auditing 315) and monitoring auditors’ compliance with the enhanced IRBA Code of Conduct, which became effective in June 2019.

We believe that the recent crises provided an excellent opportunity for the profession and regulators to revisit any shortcomings and respond in a manner that will restore trust in the profession again.  

Amir Ghandar, CA ANZ

Trust in the accounting profession is in the midst of a dramatic change – not a slow movement such as erosion, but more like the rupture associated with an earthquake.

This is a challenge our profession does not face alone. Many institutions, industries and professions are confronting challenges on trust, which is reflected in the scrutiny on audit and other regulated activities around the world, including in Australia and New Zealand.

As the accounting profession deals with change in the face of new public expectations, digital disruption, more regulatory demands and transforming workplaces, trust and ethics must  remain at the core of what we do. Individual accountants and firms may be buffeted by change, but the profession will remain strong and trusted if we remain true to our ethics and distinctive values. 

A Chartered Accountants Australia and New Zealand (CA ANZ) thought leadership paper released earlier this year shows that accountants are among the most trusted professionals. We have also undertaken a study of retail investors indicating healthy levels of confidence in listed company audited financials; however, this is no immunity from the challenges to trust and social license that have become a norm of the 21st century. 

In Australia, a parliamentary inquiry into regulation of auditing is underway. This is an important public conversation at this time, notwithstanding we have not had the same catalysts as some countries. Our ability to embrace this dialogue, being open to where change is needed, along with our willingness to champion audit’s central and evolving role in integrity across the economy is a vital test.

We have spent the past year workshopping the future of audit across Australia and New Zealand with chartered accountants, investors, regulators and other stakeholders in a series of roundtables covering trust, the scope and expectations on auditing, confidence and quality.

We have also reached out to average investors, the ‘mums and dads’, and members of the public to understand their views, concerns and confidence levels, and completed a series of research projects to underpin this outreach with an evidence base. 

Pulling together what we heard, we have put forward a comprehensive 15-point plan on audit and risk. The plan presents a roadmap that would change the game in terms of tackling confidence and quality in audit, and veracity in how risks facing investors and consumers are covered. The plan focuses on:

  • Safeguarding confidence in audit by tightening the regulations and governance around how potential conflicts of interest are dealt with.
  • Covering the risks that matter to citizens and businesses – not just financial but also emerging risks, fraud and misconduct risks – by integrating the lines of defence and ensuring there is personal accountability along the full chain, for effective systems and controls.
  • Improving audit quality through strengthening regulator and audit committee oversight and a focus on the skills of auditors.

There is substantial support for these ideas in submissions to the Australian audit inquiry, including among regulators and standard setters, investors, academics, and the profession – which comes as no surprise given the extensive outreach. We have developed the plan by listening to these voices.

Looking ahead to 2020, small and medium-sized accounting firms will continue to face existential challenges from digital disruption. They will need to deliver a broader range of services, built on their expertise, innovation and trust. While the public scrutiny around auditing has been generally at the ‘big end of town’, the challenges of scalability and relevance in the SME space continue, and the welcome efforts of audit standard setters internationally – and in Australia and New Zealand – in this regard are critical.

Professional bodies such as ours have a part to play in helping firms survive and thrive in the evolving tech environment. One CA ANZ initiative that has been a great success has been our technology-focused CA Catalyst programme, which helps members keep pace with new solutions, technologies and insights, and connects directly with cutting-edge start-up businesses.

Our members have shown a hunger for the information the programme provides, selling out webinars in a matter of hours. The enthusiasm of the next generation of accountants collaborating with the start-up community and creating value greater than the sum of its parts bodes well for the future. Our fundamental roles of translating, advising, critiquing, exercising judgement and providing independent assurance, while drawing on our ethical foundation, remain essential. 

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