The 21st century auditor
The challenges experienced across global markets in recent years have placed new demands on the 21st century auditor that require a broader perspective and an array of specialist skills.
Audits are first and foremost intended to give comfort to shareholders or investors on the integrity and quality of a company’s financial statements. However, in principle, auditors also work hand in hand with regulators to provide prudential oversight over the financial markets. This alignment of interests requires a far broader perspective from the accountancy profession than it did 20 years ago.
Audit engagement leaders are often required to carry out a number of business duties at any one time, which can impact strongly on an engagement. It is therefore essential that they are surrounded by experts who are at least as specialised as the people they are auditing. Financial services organisations, for example, are now filled with people whose fields of expertise are increasingly specialised. So, the auditor’s role must evolve to take this into account, paving the way for new skills and even new careers.
Certifying a ‘true and fair view’
The ‘true and fair view’ is an intricate concept that has given rise to a great deal of criticism. Ultimately, it is about confirming that financial statements align to a particular set of rules. Different countries have developed different sets of rules and the introduction of international standards is still in progress. Moreover, tax regulations are not always aligned to these rules, so a single company, with many subsidiaries, can often have several sets of financial statements, which the auditor certifies all give a true and fair view even though the results may differ.
‘Fair value’ is further complicating our understanding of true and fair view. Fair value is now present in all financial information and differs from net asset principles. In fact, it creates an out-and-out antagonism between the view taken by the markets and the vision of stability that our regulators would like to see. All this confusion means there is an urgent need for further clarification on both true and fair view and fair value.
The evolving auditor
In light of these developments, the role of the auditor needs to evolve in a number of ways:
- judgement on the value of an asset, transaction or product in an international context
(as is the case with transfer pricing) should be presented in a full and transparent manner
- vague, ambiguous, abstract language should be avoided in disclosure statements and good governance reporting should be encouraged
- skills should go beyond mechanically applying the new accounting rules, with new assessments, checks and judgements inevitably creating a need for new skills training is not only critical, it is the prime tool that larger firms are using to attract the best talent.
Skills and training are generally believed to be the main guarantees of the profession’s credibility. However, the European authorities in particular are focused on developing structural solutions aimed at promoting greater independence – perhaps in view of their own interests. It is true that independence and competence are equally necessary to ensure quality auditing. But if independence requirements end up limiting the fields that experts can work in and they can only exercise their skills in the context of ‘verification’, then this could potentially affect audit quality and the credibility of the profession as a whole.
The future of the profession
There has been a mass of new legislation, regulation and restrictions recently, all of which are likely to be just the tip of the iceberg. Inevitably, these will take their toll on businesses, their products and growth plans. Other changes include a shift in social, environmental and demographic pressures, and communication will need to develop in line with this.
To keep pace with these changes, firms require new talent. Most firms turn to their competition to seek out new talent, while others look abroad. However, both routes have drawbacks. Going to the competition often results in retaliation and can quickly end in stalemate. Going abroad, on the other hand, can be a costly solution and some new recruits may merely see their new company as a stopgap until another opportunity arises elsewhere.
Is there a solution? Firms need to provide their people with a sense of security and purpose, enabling them to really put their skills to work. They should be given training and the boost they need to get them to the next level with the full backing of the firm – and HR staff in some cases. All of this will mean higher costs and it can be a major challenge – but one well worth making a start on to secure success in the long term.
For more information, contact:
Francisco & Asociados, Dominican Republic
T +1 (809) 689 3881 ext. 303