As an accountant, and having spend some time in external audit firm with a Big 4 Accounting firm and also as an internal auditor, the above article was of great interest to me.
Audit was a great stepping stone for a fresh graduate. It was a place where you could learn, explore different industries and test your mettle to see if you can survive long hours, high pressure and tight deadlines without making any mistakes or overlooking important details. A typical pressure cooker situation. While the cash compensation component was decent it certainly was nowhere close to what you could get paid in industry. However, from a career enhancement perspective, it would bring you a vast amount of experience across different industries, and across different departments so that you could have a more holistic view of the business operations. At the same time, you would learn all the accounting standards, compliance requirements and interact with tax departments, corporate secretarial companies, IT audits and perhaps even get an opportunity for an overseas assignment. A huge chunk of auditors would spend the minimum 3 years to get their CPA qualification and find other opportunities in industry. Those that enjoyed the audit world, would stay and build careers as managers or even become partners where the compensation levels start to look extremely comfortable. That comes with pressure to bring in new clients and grow the business but then what business survives without growth and sales.
The article mentions higher starting pay, investment in learning and development as a way to attract talent. Employees are frustrated with work-life balance and want to get away from mundane, routine and repetitive work.
Singapore has been raising the audit thresholds steadily where companies below a certain threshold do not need audits if they are classified as private exempt companies (meet 2 or of 3 conditions : (1) < $10M in revenue or (2) <$ 10M assets or (3) <50 headcount). While that reduces the pool of companies that need audits, many companies voluntarily get audits done while listed companies have to appoint an external auditor.
How is audit perceived to add value
Many companies view audit as a necessary evil. It adds costs, disrupts internal finance team schedules to deal with audit queries and add a lot of disclosure burdens that are relevant only for financial audit purposes that management reporting seldom cares about. While audit provides reasonable assurance that the financial statements are free from material errors there are cases where audits fail to uncover material fraud and errors. Beside being a statutory requirement, how can an audit or the audit process create more value for the clients? Most clients simply care about meeting compliance requirements to file their statutory financial statements but rely more on internal management accounts to run the business.
Audit Fees – is there a better alternative
Currently audit fees is a commercial negotiation between the company and the auditors. Largely based on time-costs and efforts expended there is ample room for dispute and misunderstanding on how the effort is spent. Auditors require clients to provide accurate, credible and timely information to perform an efficient audit. That situation is rare to find in reality. Companies feel that the auditors ask too many questions, do work on financial accounting standards that have little operational relevance and seldom provide any insight into the business operations or highlight opportunities for improvement. However, while companies are looking to reduce audit costs, audit firms need to attract qualified talent, train resources, deal with attrition, and make a profit, while making sure that they have a great risk management strategy in place to avoid being sued for negligence.
Is there a better way to create a more level playing field? Many suggestions have been put forward in the past including regulating fees as a % of client company revenue, assets or a mix of the two. Others have proposed an audit fee fund, where companies pay a premium to fund and subsidize audit firms time costs where anomalies have been found at a client and where additional time costs need to be incurred but the likelihood of recovering fees from the client is remote. This will help to improve audit quality and independence without having to worry about poor recoveries on audit engagements. The government can also do more to fund investments into training of accountants as well as provide subsidies to audit firms or co-fund salaries for the first 3 years of audit assistant salaries. Higher starting salaries could attract more people to take up accountancy as a career.
Other Challenges
With Financial Accounting standards constantly changing due to higher risks, the costs to train auditors keeps increasing. As the standards get more complicated, the ability for accountants in industry to keep up with the changes keeps shrinking. Companies do not have enough training budgets to keep their employees abreast of new standards and the bulk of the responsibility to adhere to standards falls on the auditors.
Next steps
while there are no clear solutions, companies need to keep working on get to a better place. With cloud accounting software and other digital tools, workflows and straight through processing, auditors will need to perform lesser manual work to get to the same level of assurance. IT audits can leverage integrity of management reporting tools and reports to provide auditors with comfort on the control environment. Enhanced analytical procedures can uncover potential misstatements and provide auditors an easier way to validate financial information and their conformity to expected financial business performance and ratios.
With the advent of blockchain and Robotic Process Automation, auditors can shift their focus from test of details to test of the control environments where the likelihood of a programmed process on a computer to make errors is far lower than if a human performed the same process manually.
Auditors will also need to keep exploring methods to reduce their risk. Perhaps regulators can increase the responsibility of company officers, management and CEOs including criminal penalties for financial fraud as a deterrent to falsifying financial information which would allow auditors to work more efficiently.
The health of the audit profession is clearly at risk and new ways to address some of the challenges are required urgently.
