Focus: The evolving role of the audit profession

The world in which the accountancy profession is operating in has significant challenges and complex problems. The South African economy has not received any room to recover from the impact of the COVID-19 pandemic and the economic lockdowns. In 2022 alone, the economy has been under significant pressure as a result of the Russia−Ukraine conflict, floods in KZN, as well as the current energy crisis which led to Stage 6 load shedding in July. The voices calling for sustainable business practices across all industries are growing ever louder and the journey towards ‘Net Zero’ will require everyone across the globe to play their part if we are to successfully combat the risks associated with climate change. Investors want to know more about entities than just their historical financial performance and the financial and other corporate reporting requirements are constantly expanding to accommodate these demands.

Complex challenges indeed! Problems that will require the auditing profession to step up and make their mark in contributing to the overall solutions, given their training and ability to analyse and solve problems. Furthermore, cutting-edge technologies should enable auditors to gain increased capabilities to identify risks and anomalies in the underlying entity information as well as to improve the speed of audits. The next generation of auditors will need sharp technology acumen in order to understand the systems and technologies used by the audit clients.

The International Auditing and Assurance Standards Board (IAASB) is currently working on a project to draft a standard for assurance on sustainability reporting. This indicates that looking into the future, the role of the auditor could expand wider than the financial statement audit and there may be more demand from entities for the auditor to provide assurance services on a wide range of an entity’s activities, such as management performance measures, cybersecurity controls and environmental social and governance (ESG) metrices.

While the future may present opportunities for the auditing profession as stakeholder needs evolve, maintaining high audit quality will still be a critical factor if the profession is to remain relevant. Competence and independence are the bedrock of high audit quality. One would be hard-pressed to choose one over the other. Independence ensures that the auditors are able to bring in the appropriate challenging mindset when evaluating audit evidence and making judgements. However, a fine balancing act is required to keep these two in equilibrium. For example, in introducing reforms to enhance auditor independence, legislators and regulators often run the risk that the level of competence in audit engagements will reduce thus having a negative impact on audit quality. For example, while a policy like mandatory audit firm rotation may enhance auditor independence, there is a risk that the expertise and skills of the predecessor auditors may be lost in the process, particularly in the first few years after rotation. Similarly, with other proposed regulations in various jurisdictions across the globe such as prohibition of non-assurance services and audit-only firms. Business is complex and auditors need a multi-dimensional approach when conducting audits. Multi-disciplinary skills across auditing and accounting as well as industry-specific expertise are required to successfully execute high quality audits of large, complex entities.

Secondly, on this issue of competence, it is important that the profession in South Africa addresses the challenge of talent attraction and retention. The phenomenon of a large scale of employees resigning from their jobs has been termed the ‘Great Resignation’ and the audit profession in South Africa has also been impacted. All role players – audit firms, professional bodies, regulators – need to introspect and assess how they have contributed to the ‘great resignation’ within the audit profession and then make the necessary culture changes to ensure that the environment in South Africa attracts the best talent to the audit profession. We should not be content with the situation where only a few trainees who complete their training programmes choose to apply to stay within the auditing profession. Ideally, we should be aiming for a vibrant profession where the best accounting talent in the country, in large numbers, scramble to get retained within the audit firms as audit managers and later on audit partners. As a profession, we need honest conversations on the talent challenges. For audit firms, the changes in the quality management standards that come into effect on 15 December 2022 provide the perfect opportunity for such introspection. It is crucial that the implementation of the quality management standards is not viewed as just another compliance exercise as successful implementation thereof can bring substantial benefits in all areas of the firm.

We cannot dispute that the audit profession, globally, is currently undergoing transformation. However, one thing will remain true even as the profession transitions into its future self; that high quality audits will continue to be the backbone to the functioning of the capital markets. South Africa’s economic growth prospects are tied to a well-functioning audit profession. What is required is for all role players; government, audit firms, regulators and professional bodies; to engage and collaborate in creating the auditing profession that we all desire. A thriving audit profession that meets the needs of the stakeholders will also be impossible to attain without a well-functioning financial reporting ecosystem founded upon ethical principles, with the right people, right governance principles and regulation.

We trust that you will enjoy this feature that seeks to provide an update on some of the key developments within the profession.

Author
Thandokuhle Myoli CA(SA), Executive: Audit and Assurance at SAICA