The Future of Audit after the Financial Crisis
Public dialogue about the role of audit in economy should be intensified – say participants of the high-level debate in Poland
There is lack of in-depth understanding among business owners, investors, managers, regulators and auditors themselves about the current role of audit and what it should be in the future, according to participants of a roundtable called “The Future of Audit after the Financial Crisis”, organised by ACCA (Association of Chartered Certified Accountants).
The roundtable took place on 14 September 2009 in Warsaw, Poland. ACCA initiated this discussion because of the increasing public interest in the work of auditors in current economic conditions.
The roundtable included representatives of all stakeholders of the audit profession in Poland, including the Ministry of Finance, Chamber of Auditors, Commission of Financial Supervision, Union of Polish Banks, Polish Institute of Directors, Polish Confederation of Private Employers Lewiatan, and representatives of the major audit companies.
Steve Priddy, Director of Technical Policy and Research at ACCA, who moderated the discussion, said: “A strong audit function promotes trust and contributes to the working of efficient markets. The economic crisis and resulting current economic conditions raise numerous challenges for the audit profession and its stakeholders. When economies throughout the world are shaken by corporate corruption scandals, it is important to reassess what the future of audit should be, and quite importantly, how its role in economy will and should be understood by wider society.”
Participants of the roundtable agreed on the following key points during the heated discussion:
1. Auditors cannot be solely blamed for the financial crisis, as the responsibility lies also on accountants, managers, board members, investors and other stakeholders. The auditor’s role is not to predict the future but to ensure that companies’ financial statements give a true and fair view of the previous 12 months performance. But at the same time, financial statements do include many assumptions about the future.
2. Currently there is a lack of understanding of the role of audit – an expectation gap between what wider groups of stakeholders and managers, owners of companies think of auditors, and what the actual role, function, and limitations of audit are. Companies often don’t see the value added by auditors. Participants of the round table agreed that this first public debate is very important and that public debates and discussions of this kind should be held in the future with all participants expressing a willingness for further cooperation.
3. Exemption from audit may not be a beneficial way to tackle administrative burdens. Increasing the current regulatory thresholds can actually lead to the potential for increased corruption, bribery, and money laundering.
4. The quality of education and professional training of finance professionals is still very important in Poland and around the world, though tremendous progress was made in last 20 years. There is clearly a need for further research into such issues as the economics of audit, the perceived value of audit, and the way in which an audit is actually conducted.
The following attendees offered a series of comments:
Joanna Dadacz, Director of the Department of Accounting at the Ministry of Finance, stated: “Are auditors are to blame for the financial crisis? Not solely - investors could be blamed, managers, accountants - not only auditors. I would rather say that thanks to auditors, the financial crisis was first disclosed in 2007.”
Waldemar Majek, ACCA, CIA, Head of Audit training at BPP Professional Education, raised a number of questions, saying: “Auditors work focuses on historic data, but the value of assets also depends on the prediction of future events, and there are some assumptions of the future in financial statements. So should an auditor look into the long-term business model of the company? Should auditors be working more closely with boards, owners of companies?”
Maria Rzepnikowska, Vice-president of KIBR (Polish Chamber of Auditors), said: “Talking about business models, auditors should assess companies' business models from the point of view of inherent risks. The role would be not to evaluate business model itself, but rather assess results of a given business model.”
Włodzimierz Grudziński, Vice-president of the Union of Polish Banks, raised the issue of economics of audit: “The role of audit is to fill in the gaps in information available on the market. But who is paying auditors? Should external audit be paid by the company being audited? Or maybe part of the cost should be shared by government supervision body or by clients of the bank being audited?”
Dagmara Wieczorek-Bartczak, Director of the Department of Financial Insurance Supervision, Commission of Financial Supervision, pointed out: “Independence of auditors is very important, but also it is important to ensure rotation of auditors working for the same company for long period of time. We, at the Financial Supervision Commission, started talking more to auditors. We have set up a committee, aimed to increase cooperation between the Commission and auditors, we hold regular meetings on different topics of mutual interest.”
Andrzej S. Nartowski, President of the Polish Institute of Directors, Prezes, Polski Instytut Dyrektorów, particularly stressed on importance of member of audit committees to be well paid, and also informed on joint ACCA-PID initiative on preparing lists of highly-qualified audit professionals to become candidates for audit committees in companies.
Daria Kulczycka, Department of Economic Analysis, Polish Confederation of Private Employers Lewiatan, pointed out: “The most crucial issues in Poland are quality of finance professionals, quality and clarity of tax law. Training and education of finance professional is very important.”
Wrapping up the debate, Malgorzata Sawicka, Head of ACCA Poland, said: “ACCA is proud to have organised this initial high-profile discussion. Following this roundtable, and based on the issues raised today, ACCA will develop a set of recommendations outlining perspectives for the development of audit profession in Poland – in tight cooperation of all key stakeholders. These recommendations will be targeted for audit practitioners, government, business, educators, profession and professional bodies, and will be publicly presented on 15 October 2009, at the CFO European Summit”.