Q+A: Deloitte’s UK managing partner for audit & assurance

After a rollercoaster of a year, a lot has changed in the world of audit. The new year ahead brings even more disruption as operational separation begins and potential upcoming reforms sit on the horizon. Shedding some light, we caught up with Paul Stephenson, Deloitte’s UK managing partner for audit & assurance.

Working his way up, he has held numerous management positions within the firm’s UK audit and assurance business providing assurance to numerous large complex organisations. He has led the firm’s graduate recruitment team and played an instrumental role in the launch of the firm’s school leaver programme in 2011. In October, he was appointed UK managing partner.

What lessons have you learnt from this year’s crisis?

The biggest has been just how brilliant our people have been through all this. I’ve been truly impressed by how they’ve responded, quickly moving their interactions online. Now having been through a number of June year end audits entirely remotely, as well as having completed much of the audit planning for the December 2020 year ends, we’re confident we’re in a strong position to conduct our work remotely for as long as needed.

Our teams have been clear with the entities they audit that our number one priority is quality, and we’ll never compromise that. This means we’ve had to delay a number of audit opinions this year until we were fully satisfied we’d gathered sufficient evidence to support our opinion, and we’ll continue doing this where it’s absolutely necessary.

The restrictions on travelling and visiting offices have pushed us all to work in innovative ways that we may even use elements of going forward. Examples might be attending stock counts virtually as well as physically, or creating virtual audit rooms so that auditors working in different countries and locations can work far more collaboratively on a real time basis.

At the same time though, we know the current environment has created some personal challenges and the importance of people’s wellbeing and resilience is at the heart of everything we do. We’re constantly looking for different ways to connect with our people and make sure they feel supported – whether that be social events online, drop-in sessions, or just picking up the phone to check in with members of the team who might feel isolated.

How is the audit function likely to evolve with the growing reliance on tech?

As a firm, we’ve been investing significantly in our audit technology, in order to respond to both the evolution of digital in the companies we audit, as well as within our own business. Examples include embedding automation, using analytics to help identify risks, and deploying contract reading technology with machine learning. We’re also piloting how we can use Open Banking computing, greater use of AI and partnering with technology firms to find new ways of working.

We believe technology is at the centre of the future audit product. It also frees up more of our auditors’ time to focus on the more complex areas of an audit. This includes areas like challenging judgements and time to consider more subjective areas. Not only does this make the role more interesting for our people, but it also significantly improves audit quality.

Has 2020 stressed the need for audit reform?

Yes, definitely – we see the disruption caused by the pandemic as a catalyst for pushing on with, not waiting for, much needed audit reform. It’s really stressed the need for quality audited information for the capital markets to operate. But it’s also shown the inadequacies of the current audit product to meet the needs of all of its stakeholders.

Although some audit reforms require legislation and further consultation, others are already being taken forward voluntarily by the regulator and the firms themselves.

We’re committed to playing our role in delivering change and are working with the FRC to progress the operational separation of our audit business. This includes the recently announced creation of our independent Audit Governance Board (AGB), which will have responsibility for providing independent oversight of our UK audit practice, and focus on the policies and procedures for improving audit quality. We’re also continuing to develop a broader and more forward-looking audit product, in line with the Brydon review recommendations.

What trends are to be expected in the new year?

The stage is set for 2021 to be the most important year for progress on audit reform to date.

Following several years of reviews and reports, the industry is now expecting proposals and a consultation from BEIS shortly. We hope to see input not just from auditors and policy makers to the consultation but the business community at large – including investors, industry bodies, audit committee chairs and company directors. It’s too important to the business community as a whole not to warrant widespread input.

Alongside the continued evolution of our audit product, progress around operational separation will also of course be vital. Following submission of the audit firms’ plans on operational separation in October, and once agreed with the FRC, we expect to see rapid movement towards ring fenced audit businesses. Our AGB will launch on January 1, 2021 and we believe the majority of the changes to our business can be made ahead of the 2024 deadline.

 Where do you see the future of audit?

The future of audit comes down to the people in our profession. We’re committed to offering world class training and development, which we hope provides a rewarding career, and means we can attract business leaders of the future. These individuals will be set to challenge ever evolving modern corporate business models and how they are reported on.

After all, I really do believe that being an auditor represents an opportunity to see deeply into businesses like few other professions. Our work enhances trust in the companies we audit, helping the capital markets function with greater confidence, and I believe we should be proud of the role we play.

But it’s crucial that we continue to attract a diverse mix of talent from all different backgrounds both within Deloitte and across the industry, and provide an inclusive place to work. This is an area of special importance to me personally, as someone who grew up myself on a council estate and attended a comprehensive school in the North East of England in the 1980s. Schemes like Deloitte’s apprenticeship BrightStart programme and being a founding partner of the UpReach social mobility charity, are just two examples of where progress can be made.

How do you think operational separation will impact auditors?

Although there’s plenty to do, I believe our Audit & Assurance business and the industry as a whole will emerge from operational separation as one we can continue to be proud of.

We recognise that the auditing profession needs to develop to restore public confidence – both by continuing to improve audit quality and by working with other market participants to ensure that corporate reporting better serves changing stakeholder needs and the society in which we operate.

We welcome Sir Donald Brydon’s vision for a broader auditing profession, which we feel will help restore the attractiveness of what we do and the value we, as auditors, can bring.

After all, while there’s been a great deal of scrutiny around the profession in recent years, it’s also highlighted the importance of what auditors do and the important role we play in the capital markets. It’s therefore time to make the most of this and commit to meaningful reform.