How can auditors and regulators work together to restore trust in the financial systems, asks Deloitte Touche Tohmatsu’s global director Roger Dassen
SINCE THE 2008 global financial crisis, there has been a lot of disagreement and finger-pointing about who’s to blame, with the auditors’ role in the crisis becoming part of the debate as well. One thing everyone seems to agree on is that changes are needed and, in that vein, the most important question has become: how can auditors and regulators work together to help restore trust in the financial systems and prevent future crises? And, taking it a step further, how does the audit profession need to change to meet evolving expectations?
A first step in restoring trust, I believe, is that auditors must take on a more significant role in fostering a dialogue with significant stakeholders. We need to ensure this dialogue is an open, public one which works to bring about a greater general understanding of the role and responsibilities of the auditor. The auditor’s role in strengthening capital markets has become lost in the noise. While the current audit model may not be perfect, we would have chaos without the integrity it fosters in financial reporting.
Yet, this conversation should not stop at what the current role of the auditor is. Moving forward, we must explore how the audit profession can and should evolve to better meet the needs and expectations of investors. Beyond auditing a company’s financial reporting, the public expects auditors to help identify strategic risks, such as risks in the business model of a client or a sector, or risks that could potentially inhibit sustainable business or have a destabilising impact on society. What role can and should the profession play in identifying these expectations? And whom should they report these issues to-an organisation’s audit committee and board, publicly, the individual client, or more broadly such as to industry communities?
Clearly, the fact that auditors currently report in somewhat constrained parameters has contributed to the current expectations gap. When an auditor’s expertise and diligence lead to corrected or improved financial statements, this “success” is only visible to a small group of people (for example, an organisation’s audit committee or management) and is not apparent in a standard audit report. An audit “failure,” however, is visible to everyone. In today’s society, where building trust is significantly more difficult than losing trust, this is one of the most substantial challenges facing the audit profession. And the only way the problem can be mitigated is if the role of the auditor is publicly understood as critical in identifying and disclosing socially-relevant issues and risks.
The audit profession is fully committed to this remit: expanding its role in order to meet evolving social expectations. But it cannot do it on its own. Success will require the involvement of the reporting community, the users of business reporting, regulators, and other stakeholders.
While this involves a large range of stakeholders inside and outside our profession, the work begins at home. Charting the future course of audit, we need to re-think how to improve audit quality and methodology by leveraging new, innovative technology and processes, and consider how these advances will impact our workflow. For example, how will data and process analytics be used to enhance audit quality, and what would that mean to our profession’s ability to bring insights to shareholders, management, and regulators?
The end goals of industry innovation and a broadened stakeholder dialogue are the same: increased transparency and awareness into auditors’ work, enhance reporting, and more efficient and effective methodologies.
Change will not happen overnight. But it won’t happen at all if we don’t first shift the course of our conversations inside the profession, with our stakeholders, and with the general public to be open and receptive to the next frontier in the role of the audit profession.
Roger Dassen is global managing director of clients, services, and talent at Deloitte Touche Tohmatsu