The global financial upheaval of the past two years has prompted questions about the value of auditing services. Many blame auditors for missing the financial woes and improprieties that brewed, boiled and finally burst in late 2008. Blame lies across the board. Now is the time to fix the glitches in order to minimize and prevent such problems in the future.
The Association of Chartered Certified Accountants, a global body which supports accountants and provides world-class accounting and finance qualifications, believes that it is vital for the accountancy profession to re-examine the role of auditing. We firmly believe that audits are a source of public confidence in financial reporting.
The future of the audit profession was discussed recently in Ukraine, one of the world’s economies hardest hit by recession in 2009. The ACCA conducted a Jan. 27 debate in Kyiv called the “Future of Audit.”
Attendees, including government regulators and representatives of the so-called Big Four accounting and auditing firms, concluded that the role of audit is critical to helping Ukraine recover from the crisis and ensuring accurate disclosures for business. This is, in turn, essential for raising working capital for companies.
Several problem areas unique to Ukraine were identified. Most attendees agreed that the key issues for Ukraine in the sphere of audit remain lack of transparency and corruption.
Gerry Parfitt, partner in Ukraine for KPMG, conceded that some of the blame for the economic crisis lies with the audit profession, which he said could have promoted greater transparency. “In the United Kingdom, every single company has to file their accounts annually with the registrar of companies. It is a public document easily available over the Internet,” Parfitt said.
Viktor Suslov, head of State Commission on Regulation of Financial Services Markets in Ukraine, talked about conflicts of interest in audit-business relationships. “The one who pays is the one who calls the tune. When shareholders, rather than their agents commission the audit, then it will be more reliable,” Suslov said. “This is not always the case when management is commissioning the audit. Management wants to look better before the shareholders, and selects an auditor accordingly. Out of 40 insurance companies that were recently excluded from the registry due to insolvency, all of them had positive audit reports.”
Ukraine’s deputy justice minister, Volodymyr Bogatyr, supported the implementation in Ukraine of International Financial Reporting Standards.
Angela Prigozhina, senior financial sector specialist at the World Bank in Ukraine, said that it is impossible for the nation to climb out of the crisis without strengthening its transparency and competitiveness. “It is naive to assume that the market in Ukraine will increase the quality of audit and financial reporting – as the market itself conceals information, in order to participate in unfair redistribution of private and public resources in times of crisis,” Prigozhina said.
She also called for all regulators to work closely together on monitoring auditors, establishing a joint registry, and punishing non-ethical, non-professional behavior.
The general conclusion is that troubles afflicting the audit sector in Ukraine reflect the same illnesses pertinent to the country’s overall economy – corruption, lack of transparency and single rules of the game.
We at ACCA propose that the profession should develop approaches which pay more heed to the needs of a wider circle of stakeholders than simply current and future investors. This, we believe, will be achieved by extending the scope of the audit from giving an opinion on financial statements alone to engaging on issues such as risk management, the effectiveness of corporate governance and testing the assumptions of an organization’s business model and its likely sustainability.
Auditors currently give no view on the business model, but there is no reason why they should not. Many believe that communication with company boards includes commentary in this area anyway, so why not make it official and open?
We believe auditors are up to the job. It should not be forgotten that the same firms regularly take on a wider approach to the auditing of public sector bodies, where they report not just on financial statements, but also cover corporate governance and, in the United Kingdom, efforts by their clients to secure value for money for the taxpayer.
The underlying essentials of assurance, of bringing an independent and quizzical assessment, will continue to add value to businesses as they emerge from the downturn and help bolster confidence in giving them access to finance.
The profession can best face down the skeptics by being bold, progressive and establishing new assurance offerings which meet the needs of businesses, stakeholders and wider society. It is important that it does, because the economy needs the confidence that audits can engender. It is now up to the profession to demonstrate this value.
Nataliya Vovchuk heads the Association of Chartered Certified Accountants in Ukraine, Baltic and Caucasus states. The ACCA is the leading global professional body for accountants and finance professionals, uniting 362,000 students and 131,500 members in 170 countries worldwide. Vovchuk can be reached at email@example.com.