This is a summary of what we heard from stakeholders throughout our programme of engagement.
Views from stakeholders
Beyond historical information
“An audit is by its nature a review of the past. But investors don’t care about the past, they care about the future.”
Would the audit be more valuable if it provided more information about the risks a company faces?
Stakeholders tell us they want:
A greater focus on the future, including for the audit to provide assurance about a company’s future prospects.
Clearer signaling of risk in the annual report and, in turn, in the audit report.
A stronger going concern assessment, which goes further and is reviewed more frequently by a company and its auditor.
A stronger viability statement from a company that explicitly sets out its appetite for risk and for the statement to be within the scope of the audit.
Greater transparency through the auditor’s report by providing the auditor’s view of a company’s prospects, the risks it faces and how well-equipped the company is at managing them.
72% of investors and 79% of businesses who responded to our survey are in favour of the audit scope considering key risks and uncertainties facing a company
Beyond shareholders
“Audit has societal purpose and is no longer just about shareholders, but broader stakeholders.”
Should the audit evolve to serve a wider range of stakeholders?
Stakeholders see a need for:
Simpler, more accessible corporate information that is tailored to meet the interests of different stakeholders.
Seeking a better understanding of the needs of a wider stakeholder community could help ensure corporate reporting conveys the information stakeholders need to understand the business’ performance and prospects.
32% of investors and 52% of businesses who responded to our survey are generally sceptical that today’s audit meets the needs of a company’s stakeholders such as employees, customers, suppliers and local communities
Beyond the financial statements
“Non-financial information is a very important part of the reporting cycle. But we wouldn’t necessarily believe that extending the audit to cover that information is the most important next step.”
Could the audit cover the other types of information companies report?
Among stakeholders there is:
A divergence in views about auditing non-financial information, given concerns that this information may not be sufficiently robust to be audited as compared with the core financial information.
An appetite for financial information reported outside the financial statements to be included in the audit, particularly from investors who frequently use such information as a basis for their decisions.
A desire for the information that is audited to be customisable, so that the scope of the audit may be tailored to the needs of the company and its stakeholders.
Only 43% of investors and 35% of businesses who responded to our survey support the inclusion of corporate culture, ethics and behaviour within the scope of the audit
A different approach for big and small companies
“The more we expand the audit, the less likely it is that one size will fit all.”
Should all companies be subject to the same framework for an audit, regardless of their size and type?
Stakeholders want the scope of the audit to be more flexible, and in particular to:
Recognise the needs of smaller businesses, because a single audit framework is considered too rigid to meet their stakeholders’ requirements.
Look at whether to audit smaller privately-owned companies at all, given that their shareholders are often directors of the company and have access to all the information they need about the business.
Bring greater scrutiny for companies with the greatest societal footprints, because of the potential harm that could be caused by their collapse.
64% of investors and 82% of businesses who responded to our survey think that the audit scope should be flexible so that it can be tailored
Technology reshaping the audit
“Technology clearly has a role to play—but you can’t replace the human being walking around the finance department and standing tall with the CFO.”
How can new technologies make the audit more efficient and effective?
Stakeholders share:
Optimism about the potential impact of technology to increase the efficiency and quality of audits.
Caution about the limits of technology, because it cannot provide auditors with everything they need to know about the company and its management.
- Belief in the continuing value of human judgement since, regardless of how big a role technology plays in the audit process, there will always be a role for the experience of human auditors.
Only 36% of investors and 37% of businesses who responded to our survey think technology will enable auditors to better understand a business
Driving audit quality
“As investors, we are looking for judgement. We are looking for someone sceptical, willing to challenge—but we feel the ‘beige-ness’ has taken over.”
How can the profession work to deliver consistently high quality audits?
Stakeholders have:
Differences in opinion about whether today’s audit is ‘broken’, with some, particularly investors, feeling it is not providing the assurance they need, but others thinking that ‘broken’ is too strong a term.
Questions about how to define quality, with no consensus on a description of audit quality, but an agreement that the skills and experience of audit teams are critical.
A desire for a culture of challenge in audit teams to ensure that auditors are consistently able to scrutinise companies effectively.
Demands for the audit to better communicate the risks of fraud, with ideas ranging from expanding the audit to include fraud detection to requiring companies to report on internal controls in respect of fraud.
- A request to increase the responsibilities of company directors so they are sufficiently accountable for the accuracy of the financial information published by the company.
Only 41% of investors who responded to our survey feel that today’s audit effectively serves their needs
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