Angel Sithole | Project Director | Audit and Assurance | South African Institute of Chartered Accountants (SAICA) | mail me |
The last five years have seen an improvement in the audit profession when it comes to audit failures.
Is this evidence that the entire financial ecosystem finally understands the importance of taking responsibility for the audit process or is it because of the increase in legislative mandate and high scrutiny that is currently imposed on the audit profession?
Some legacy issues come up now and then on the news, but we are hopeful that the days of audit failures are behind us. How do we continue to ride this new wave, as it were, and retain the momentum?
Auditors are regarded to be independent gatekeepers for investors and shareholders. This is potentially why there is usually an expectation gap between what auditors’ responsibilities are and what the market thinks are the responsibilities of auditors. How do we narrow this gap and ensure that everyone in the financial ecosystem wins?
Ensuring good governance and accountability
A lot of research has been done on human behaviours and the financial ecosystem. Some may say let’s keep telling the good stories of what auditors do, while others say let the entire financial ecosystem be trained on their respective responsibilities to ensure good governance and accountability.
The one fact that remains unchanged is that one audit failure results in a negative perception of the entire profession.
Would a centre of audit quality shift the eco-dynamics? Would it assist our profession in ensuring that all members of the financial ecosystem are held accountable? Let’s explore this thought further.
The main purpose of having a centre of audit quality is to enhance public trust and promote high-quality financial reporting by the profession. The role of auditors will continue to be critical when it comes to financial capital markets in protecting investors and the public at large.
Investor confidence and trust in capital markets have a direct or indirect correlation to the state of affairs of any organisation − which in recent years usually means the audit opinion will increase or decrease investor confidence, which in turn will affect the shareholder value.
For example, an audit opinion that consisting of several key audit matters highlighted by auditors from internal controls to liquidity issues would make any investor uncomfortable to invest in a company, and those investors that already have a share in the company could look to dispose of their investments.
Establishment of a centre of audit quality
Over recent years our profession has noted an increase in regulations intended to mitigate and protect the public from audit failures. This has put a strain on the profession, as we see fewer individuals who want to be registered auditors.
Changing landscapes driven by drivers such as ESG reporting, new technologies, and globalisation demand that auditors continue to upskill themselves to remain relevant in the current environment or face being extinct. The establishment of a centre of audit quality may be the answer to the call or the missing puzzle.
For example, in the United States, the purpose of the US Centre of Audit Quality includes being responsible for driving the following:
- Representing an independent voice of the auditing profession and engaging with regulators and stakeholders on matters affecting the profession and the role of the profession in the economy and society.
- Independent analysis and views on accounting and audit technical matters in general.
- Collaborating with legislators, regulators and other business associations and stakeholders to establish a stable, conducive policy and business environment.
- Promoting initiatives to enhance the attractiveness of the profession.
Does the profession in South Africa need a voice that will speak on its behalf when controversial statements are being made with regard to auditors and to drive the necessary culture in the profession that will enhance investor confidence?
Related FAQS: Audit reform
Q: What are the main objectives of audit reform?
A: The main objectives of audit reform include enhancing audit quality, strengthening oversight of audit firms, improving corporate governance and ensuring that audits serve the public interest effectively.
Q: What are the key challenges facing the audit profession in its reform efforts?
A: Key challenges include addressing corporate failures, ensuring auditor independence, managing audit fees and improving the overall perception of the audit product among stakeholders and the public.
Q: What is the significance of the Independent Regulatory Board for Auditors (IRBA) in South Africa?
A: The IRBA is significant in South Africa as it regulates the auditing profession, sets auditing standards and ensures compliance to enhance audit quality and public trust in financial statements.
Q: How do audit committees contribute to improving audit quality?
A: Audit committees contribute to improving audit quality by overseeing the audit process, engaging with auditors, and ensuring that there is effective communication between the auditors and the board regarding audit findings and recommendations.
Q: Why is the future of audit a matter of public interest?
A: The future of audit is a matter of public interest because audits play a vital role in ensuring the integrity of financial reporting and governance, directly impacting investor confidence and the stability of financial markets.
Q: What measures can be taken to strengthen oversight of audit firms?
A: Measures to strengthen oversight of audit firms include increasing regulatory scrutiny, enhancing transparency in audit processes, implementing stricter sanctions for non-compliance and fostering a culture of accountability within the auditing profession.
Q: How do audit quality indicators help in assessing the effectiveness of audits?
A: Audit quality indicators help assess the effectiveness of audits by providing measurable benchmarks related to auditor performance, engagement quality, and compliance with auditing standards, thereby facilitating continuous improvement in the audit process.
