Following on from the collapse of UK household names like Thomas Cook, 2019 proved to be a difficult year for the accountancy industry – particularly for anyone dealing in audit.
To mitigate the industry’s high-profile mistakes, firms need to prioritise transparency and trustworthiness throughout 2020 to avoid further reputational damage.
Part of this damage control falls onto the shoulders of firms who perform audits, requiring them to both place a greater emphasis on their transparency reports, while also actively making investors and committee chairs aware of these reports.
This is especially important as a September 2019 FRC review found that 84% of audit committee chairs weren’t aware of transparency reports, and five of the reviewed 33 firms didn’t even prepare a report. Now, more than ever, the public is paying attention to what accountancy firms are doing.
“High profile corporate collapses, and perceptions of the role that greed and incompetence have played in them, raised the issue of corporate accountability and management even further,” explained Matt Gilleard, media strategist at Infinite Global.
Truly, as the FRC continues the transition to the new Audit, Reporting and Governance Authority (ARGA), which is designed to support visibility and higher-quality industry work within the UK, transparency is in the forefront of regulator’s minds.
While it’s highly likely that the ARGA transition will not be finalised in 2020, it sets the precedent for the industry’s behaviour and for the direction the industry should head in.
Putting faith in public trust
All these changes and recommendations are extremely necessary, particularly for firms who deal in audit. Mid-tier firm Mazars published a study that found only 17% of the public trusts the audit system as it exists now.
A whopping 72%, however, support the introduction of joint audit, an idea that the Competition and Markets Authority has recommended and has even received government support.
“We shouldn’t be shocked by these findings and urgently need to rebuild trust,” Scott Knight, head of audit at BDO, told Accountancy Age in October. “We will only be able to do this when the public can see a real transformation in the market – with increased competition, transparency and accountability.”
As Accountancy Age has previously explored, the public is not trusting in general, which is why things like ratings and reviews have so much control over public opinion.
When a business is working with something as precious as their money, people are that much more untrusting of the employees – and coupled with years of scandals and mistakes, as every business is prone to make, the trust between accountants and their clients has become worn.
“The key for all firms is to be making sure that their focus is on quality,” advised Steve Gale, partner at UK accountancy firm Crowe. “There is no room for complacency, even for firms that haven’t necessarily been hit by public scrutiny.”
That quality aspect can only be regulated so much by regulatory bodies, however. At the end of the day, firms will have to make a choice on how to move forward and what areas of their businesses are being perceived as untrustworthy.
Saving the good name of audit
One major area that the accountancy industry needs a PR-led facelift in is the audit department. Every time that an audit scandal hits mainstream headlines, the reputation of the accountancy industry as a whole – even those who do not dabble in audit – is negatively affected.
“There’s no silver bullet,” Knight explained in his October interview. “A comprehensive package of remedies is required – including more competition focused on quality, a clear demarcation between audit and non-audit services, and enhanced regulatory oversight.”
This is precisely what the FRC and CMA want to happen, and with the newfound power given to ARGA, might just be what the industry receives in 2020. However, even firms that will not be directly affected by these changes need to pay attention to what is happening within the industry and how it reflects on them.
Gale noted that change will come on the coattails of the Brydon Review and provide the industry with tactical recommendations for how to better itself.
“There has been an impetus for change and I believe firms will need to demonstrate that they are ready and willing to deal with the proposed changes,” Gale continued. “I don’t believe the fundamental model is broken, but there are clearly difficulties and challenges at the ‘top end’ of the market.
“There have been a number of studies and calls for change over the last 30 or 40 years which have not been heeded. The time is now right to address some of these long-standing issues in a manner that will rebuild trust and confidence, particularly in the audit of larger, listed companies.”
On the trust front, Gilleard suggested that one of the most important tools for change was already in the firms’ hands.
“The issues that audit and accountancy firms deal with are both specialist and technical in nature,” Gilleard explained. “Rightly or wrongly, this can breed perceptions of opacity or mystique among the non-acquainted. The onus, therefore, is on the industry to articulate its role in a more accessible way.”
While there is no one-size-fits-all answer to this trust problem, the applicable solutions need to be found and put into practice on the heels of the Brydon Report. The industry cannot afford to meander through 2020 without actively rebuilding trust with its clients and the public at large.