Auditing is not for everyone and it’s certainly not for the fainthearted. We have to continually challenge and raise tough questions that sometimes, no matter how skilfully delivered, can irk even the best-natured soul. We must accept, with the courage of our convictions, that our challenge won’t always be welcome. Challenge is a part of the job. The reward is the satisfaction of delivering a sound audit opinion which can be relied upon.
Challenge is of course integral to audit quality - without it, audits fail. And ask investors and business leaders what they perceive to be a high quality audit, and robust challenge is cited as a defining characteristic. That’s certainly what we’ve heard throughout our recent Future of Audit stakeholder engagement programme.
Of course that kind of high quality already exists. I’m proud of the integrity and professionalism that I see our audit teams bring to their work every day. But while I see the insight and challenge they bring, rarely does it make it into the public eye.
Every year auditor challenge results in thousands of material adjustments to financial statements - I see this when I look at audit files. And there have been notable examples in the press recently, where auditors have made themselves heard - a public sector organisation where a significant accounting judgement was challenged and changed, materially altering its funding position, or the global multinational where an audit report underlined the potential for earnings targets to incentivise management to override controls.
But these types of news stories about auditing are rare. Most headlines paint a bleak picture of a profession in need of an overhaul. With intense scrutiny and pressure to improve audit quality, the homework question for the profession is not whether it can deliver high quality through challenge - we know it can and does - but rather: how can we be more challenging, more consistently and how can we make this challenge visible?
It’s a complicated question. Robust challenge needs technical competence and deep business understanding but also confidence and, often, finely-nuanced communication skills. Things are destined to go wrong when key ingredients are missing.
We have to start by understanding the building blocks of a culture of challenge in an audit firm - and honestly evaluating how solid they really are. We think this warrants some external perspective. At PwC we have commissioned an independent paper from Professor Karthik Ramanna, from the University of Oxford’s Blavatnik School of Government, on what it takes to build a culture of challenge within an audit firm. The study concludes later in September and we’ll be using it to inform what we do. Professor Ramanna will be publishing his paper, and we hope that his insights will be useful throughout our profession.
There’s a lot for auditors to work on. This includes finding a better way to tell our story - to show where we have challenged in order to give confidence and insight to stakeholders. But I believe that the first task for audit firms is to identify which behaviours will drive a greater culture of challenge, and then to grow these in abundance. I’m passionate about bringing our stakeholders the high quality audits they deserve and appreciate that this needs increased focus and continued investment. So, as they say, challenge accepted.