AUDIT teams have the skillsets to meet today’s requirements but changes will be needed to meet the demands of audit in the future.
That is the finding of two international research studies published by ICAS and the FRC which examines the skills, capability and competency requirements of modern audit teams.
Various factors have changed the business environment in which today’s auditors operate. This has resulted in a worldwide challenge to align the capabilities (technical knowledge, skills, values, ethics and attitudes) of auditors to the requirements of this new environment.
As part of Accountancy Age’s Young Professionals coverage, here is a summary of the key skills for auditors entering the profession in today’s complex, global business environment.
Manage the expectation gap
An increased focus on assuring the narrative element of company annual reports has made audit an increasingly skilled, judgmental activity. Nevertheless, an expectation gap exists between statutory audit in its current form and the ability to provide guidance to management about improvements to their business and cross-industry trends.
Attempts by regulators to improve audit quality by introducing compulsory tendering among large-listed corporates and revisions to the content and format of the audit report has resulted in a highly-regulated audit environment. According to the findings of the FRC and ICAS, the outcome of this compliance-behaviour has been two parallel audits, namely compliance and assurance driven audits, with the former focussing on ticking the right boxes and the latter aimed to express an opinion.
According to one respondent: “If you take large complex multinational audits there are actually two audits going on in parallel. You’ve got a whole army of people executing the audit programme… then you’ve got the senior members of the team who are looking at the risks and the judgments.
The need to deliver greater judgment and assurance over client business in such a highly-regulated environment has created several pressure points which concern the ways in which auditors understand their role and communicate to stakeholders and broader society regarding the expected contribution of the audit.
The continued development and complexity of accounting standards has made auditing more difficult. In part, that reflects the volume of standards, but it also concerns the impact of standards on the nature of the financial information subject to audit.
Indeed, the view advanced by some participants in the skills study was that developments in accounting have to some extent left many auditors behind. Comments such as ‘the auditor is no longer the accounting expert’ and that companies often have greater expertise relevant to the application of accounting standards in the context of the specific business, reflect a concern that client management are more able to put pressure on auditor judgement. Auditor’s accounting expertise must be sufficient to respond to that pressure.
“The accounting environment has changed so much in recent years and the range of accounting knowledge is something that’s well factored into both professional training and on-the-job coaching that we provide,” Grant Thornton audit partner Sue Almond, says. “We might grumble about it, but actually I think it’s one of the things that makes the job more challenging and interesting in keeping people engaged.”
IT and technological skill
In addition to adding value by providing wider assurance and being more forward-looking, the opportunities offered by increasingly sophisticated technology could result in real-time auditing and the movement away from problematic statistical sampling to data analytics.
The IT capability, in particular, within audit teams will be fundamental as firms embrace the potential offered by technology to dispense with a statistical sampling and adopt full population audits using data analytics.
Massive shifts in technological innovation have been advancing at a rapid pace and the Big Four have been at the forefront of this trend, where deeper pockets can provide an instant market advantage.
In November 2014, KPMG agreed a strategic alliance with McLaren Group, to use its predictive analytics and technology, while PwC has developed Halo, a software tool that analyses millions of ledger entries at once instead of the more traditional methodology of examining a much smaller sample and extrapolating.
For Generation Y, technology is critical: they prefer to communicate electronically rather than through face-to-face engagement, to use smart devices. Audit firms have to recognise these traits. Advanced IT skill sets will become standard, and focused on the growing prevalence of mobile technology and data analytics.
More focus will be on IT interrogation and analytical techniques, which, if done successfully will almost dispense with traditional statistical sampling because they allow for efficient testing of a whole population on a real time basis. Thus, there will be a demand for more analytically-skilled people who are capable of analysing and interpreting the data generated.
Should I specialise?
In-depth industry knowledge is a must but there is a perceived danger that specialising in one sector too early – with the exception of financial services – can sacrifice breadth of experience.
Arguably, specialism only becomes important at the senior level where it is advisable to stay in the sectors and build up a proper level of expertise.
But as business models have become more complex, business understanding is increasingly considered a pressure point on auditor skills and competencies. Indeed, in many audits there are critical issues that are specific to the client’s industrial sector and may require considerable technical awareness and expertise. Examples include the nature of expertise that is required in order to audit natural reserves in the extractive industries or the assets (and potential liabilities) generated through research in the pharmaceutical and bio-medical sectors.
“It’s something that is talked about a lot when people join the firm – they’re very interested in which sector they might join” KPMG’s Paul Korolkiewicz says. “Occasionally we’ll allocate them to a sector and they’ll say ‘actually, I don’t really want to be there. Can I change at any point?’
“I always say ‘of course you can, but I almost guarantee you won’t want to because you’ll be naturally curious about that sector by that stage’. There’s a natural desire to find a home quickly when you join an organisation.”
Do soft skills matter for auditors?
“It’s critical to audit,” says Grant Thornton’s Sue Almond says. “That broader skillset – being able to communicate with people at different levels, being able to see what’s being said and what’s not being said and being able to probe is vital. It’s as much part of what makes a good auditor as technical knowledge.”
Participants in the FRC’s skills research placed emphasis on soft skills over technical competence, which was assumed to be a given.
In practice, soft skills include things like communication with various groups and interpersonal skills but, with respect to the quality of judgement, also include characteristics such as being ‘self-reflective’ and ‘understanding one’s own biases’, being a ‘good judge of character’ and having ‘integrity’ and ‘courage’ in decision making.
The ability to exercise professional judgement and possessing those ‘soft skills’ are widely seen as critical for auditing, but the routinisation of audit processes and reliance on checklists to ensure compliance with standards can undermine the development of the quality of judgement required.
As stated by one participant, and regularly concurred with in the focus groups, firms recruit lots of creative young staff but then spend a few years ‘beating the creativity out of them’. The routinisation of much audit work allows trainees to develop a view that auditing is largely the completion of a series of checklists and a consequence of this is that many good staff may be lost to the profession.
The underlying theme of all of the above is the ability to adapt.
Indeed, KPMG’s Paul Korolkiewicz is keen to highlight the role genuine curiosity and tenacity can play in launching a successful audit career.
“We look to recruit people who are genuinely keen to play a role in our world but also with a sense of resilience,” he says. “It’s a tough job and we ask a lot of people, and that’s only going to continue as the world moves on and it’s important to recognise that.”
Download the full reports
- Skills, competencies and the sustainability of the modern audit: Professor Stuart Turley, Professor Christopher Humphrey, Dr Anna Samsonova-Taddei and Dr Javed Siddiqui (Alliance Manchester Business School, University of Manchester); Professor Margaret Woods and Dr Ilias Basioudis (Aston Business School, University of Aston); and Associate Professor Chrystelle Richard (ESSEC Business School).
- The capability and competency requirements of auditors in today’s complex global business environment: Professor Karin Barac (University of Pretoria, South Africa); Professor Elizabeth Gammie (Robert Gordon University, Aberdeen); Associate Professor Bryan Howieson (University of Adelaide) and Professor Marianne van Staden (University of South Africa).
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