The audit profession must do more to increase the economic, social or environmental value of the organisations it reviews, if it’s to rebuild public trust and truly work in the public interest, according to a report published by the RSA as part of the AuditFutures initiative.
Supported by the ICAEW, Enlightening Professions concluded that the audit profession is currently trapped in an endless and irresolvable loop of discussion – “its very own groundhog day” – on how to regain public trust, and called on the profession’s leadership to take a more ambitious, outward facing role.
The report outlined how, following the financial crash of 2008, trust in the audit profession has been shaken, and challenged the profession to account for its social purpose through becoming more open, collaborative, and focussing on organisation’s outcomes as much as outputs.
Auditing should be a trust-producing practice rather than product, the report said, in which the auditors use their judgment and position as trusted intermediaries to broker rigorous learning across all dimensions of the organisation and its stakeholders and bring into consideration all aspects of an organisation’s value creation.
The report suggested that the profession is caught in a cycle driven by legislators and regulators responding to perceived audit failures, and that this dynamic is undermining confidence in auditors.
It warned against simply adding further levels of regulation concluding that “adding new rules in the hope that they will be the right rules to catch the next set of follies might be less effective than inspiring the (audit) profession with a passion for transparency, business improvement and public interest.”
Currently, much of the learning that could be most valuable from a business perspective falls outside the formal audit processes and may or may not be looped back into the company, the report found.
The report recommended that the profession would benefit from offering support to the most innovative parts of the economy, such as the social enterprise sector, and could learn from the credit agencies about how to separate fees from their analytical work.
The report concluded that the audit profession has in the past been used to incremental change and consistent methodologies. It now has the chance to create a sea-change in practice through understanding and embracing open and social auditing, new technology, real-time auditing, co-creation with social enterprises, and crowdsourcing.
Paul Buddery, partner at RSA 2020 Public Services and a co-author of the report, said:
“Change is possible and the audit profession can rise to the challenge. Leadership will need to encourage truth and reconciliation, a co-designed and positive view of the future that all practitioners can aspire too. A mood that today is darkened by frustration and defeatism, will need to shift to one energised by active engagement and bold exploration. The audit profession has already shown bravery in setting up AuditFutures to debate and tackle the kind of questions raised by our report.”
Michael Izza, ICAEW Chief Executive, said:
“Audit has helped underpin confidence in capital markets for many years, but as global and domestic markets evolve, audit needs to do likewise.
“This report raises questions which may make the audit profession uncomfortable. We have to respond to this public interest challenge, which is to think seriously about how to redesign audit to meet the changing needs of market participants. We should be open to this external scrutiny and willing to take on-board recommendations where these will improve overall business confidence.”
Notes to editors
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