Time to reassess audit
April 27, 2018
The role and value of audit has come in for some intense scrutiny in recent weeks and months. As someone who has spent my entire working life as an auditor, I don’t agree with the recent criticisms of the value of audit, but recognise we need to do more to improve understanding of what an audit is and the value it delivers. This is why I’m keen to engage in constructive debate on this important topic.
To give some context, thousands of audit opinions are signed each year by highly trained professionals committed to providing assurance that financial reporting is true and fair. In my regular conversations with investors, they tell me they value audits, and see them as playing a critical role in underpinning confidence and trust in the the capital markets. Feedback from Audit Committee chairs - the shareholders’ representative in the boardroom - and from regulatory inspections is that audit quality is improving.
This doesn’t mean there isn’t room for improvement. I believe further improvements can and should be made, and the profession is committed to doing this. Where there are shortcomings, lessons must be learned and action taken.
The profession is working hard to enhance audits. Technology is an enabler for positive change. Over the last few years PwC has invested some $500m globally in new technologies to improve audit quality and we will continue to invest heavily to ensure that audits keep pace with the rapidly changing world. Artificial Intelligence (AI) and machine learning are helping move audit from a sample testing approach to one where in the future the entire population of transactions can be evaluated. This will let us visualise data in different ways, increasing the chance of spotting unusual items or trends. We’re also using Natural Language Processing to read and examine data volumes never possible before - analysis and validation can be automated in order to provide assurance more regularly and more completely.
An area that continues to generate commentary and debate is audit market competition. The extensive recent audit reforms in the UK and EU are still bedding in. Whilst the impact of these reforms needs to be fully assessed, they do appear to be having a positive impact on audit quality and to have strengthened the role of audit committees. However, whilst competition between market participants is fierce the reforms have not increased choice in the large company audit market. We would welcome more choice. Arguably, the level of investment required and regulatory scrutiny involved has not made it an attractive enough proposition for other players to enter.
Audit is part of a wider reporting and governance system including companies, shareholders, non-executives, legislators and regulators. All have important roles to play in supporting and enhancing the capital markets. A strong and respected audit profession helps to maintain the UK’s leading position in the capital markets and its global reputation as a trusted place to do business.