The modern day auditing profession and its challenges

Audits have evolved from routine checklists to a vital part of a company’s governance process. Factors such as the volume of transactions, information technology, the 4th industrial revolution and the constant increase in the complexity and number of laws, regulations and standards governing entities and their auditors have all impacted drastically on the evolving role of the registered auditing profession. Corporate collapses, business failures and fraudulent financial reporting scandals have led to a very turbulent time, resulting in a credibility crisis for the auditing profession as a whole.

Factors impacting on the external audit function

• Fraudulent financial reporting and audit failures

There have been a few recent cases where companies and their respective auditors dubious accounting practises have been exposed. These scandals were the direct result of fraudulent financial reporting, resulting in significant losses for creditors and serious hardships for shareholders and the public. Many of these business failures were also seen as audit failures, and the auditing profession now stands accused of not performing its ‘watchdog function’ effectively and with objectivity.

• Audit costs and audit fees

The cost of performing audits has increased significantly over the past number of years. This increase is attributed to factors such as professional indemnity insurance, increasing technology costs, as well as the impact of changing audit methodologies, technologies and new accounting standards.

Unfortunately, some clients are often reluctant to accept increases in audit fees in excess of inflation. This forces auditors to do extra work without being paid for it, which in the long run will affect the firm’s ability to retain such clients.

• Auditor independence and the provision of non-audit services

The provision of non-audit services by auditors to audit clients has had a significant impact on auditors’ independence and the profitability of their firms. Typically non-audit services are very profitable and therefore sought after, with the resultant effect that in the past auditors were tempted to succumb to management pressures on external audit issues in order to retain the audit engagement, and so too provide the very profitable non-audit services.

The various regulations issued and passed, as well as the numerous corporate governance codes, now all include stringent rules that either prohibit, or strictly control, non-audit services rendered by auditors to their audit clients.

• 4th Industrial revolution

Cloud technology is a game-changer for accountants. One of the many tangible benefits of cloud technology specifically is mobile working. People can access their data any time and from anywhere, which has fundamentally changed the way businesses operate. The ability to perform real-time reporting has also transformed organisations. More information can be pushed directly into the hands of business leaders in the format they want it. Traditional technology tells you the ‘who’ and the ‘what’, but not the ‘why’. Cloud technology works in a totally different way, for example recording people’s names against revenue transactions. The linking of non-financial information into general ledgers means accountants can now offer richer services.

There are some challenges with cloud technology to overcome. Trust is one such barrier. People often lack confidence in new systems, but are sure to change their minds the more they use it. Getting staff involved in User Acceptance Testing is a good way to tackle this as people are then involved in the technology journey, learning about it while testing it.,

Conclusion

The many challenges facing the auditing profession are complex. However, given the in-depth education and training process, the rigour of the qualification process, the technical competence of auditors, their multi-disciplinary knowledge and experience, and a process of continuous learning and development, there is no doubt that the auditor will be able rise to these challenges and succeed.

‍