The director at PSTM Chartered Accountants believes audit should shift along with the business landscape.
This Future of Audit Series interview is proudly brought to you by ACCA.
In a world in flux thanks to global geopolitics, digital transformation and the rise of the gig economy, no profession can afford to ignore how business is changing. Phuthanang Motsielwa, director at PSTM Chartered Accountants, says that when she thinks of audit transformation, the top themes that come to mind include technological change, the need for accounting (including accounting standards) to evolve, and the shifting labour market.
On the back of a successful Future of Audit Series in 2021, ACCA has once again partnered with CFO South Africa to bring you a series of interviews that focuses on Audit Transformation, SMPs and important thought leaders in the audit space. Find out how the audit space can be transformed for a better future of audit.
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A changing labour market
“One of the challenges that our profession is facing, even in smaller firms, is that we’re losing staff who take up opportunities internationally,” Phuthanang says. “We’ve had staff moving to go to the UK, the Netherlands, the US, Canada, and New Zealand. They’re no longer just leaving the small firms to go to the big guys here locally. They’re leaving to go to PwC in Texas, as opposed to PwC right here in Waterfall.”
She says UK firms have started recruiting directly from South African universities to address their labour shortages as South African graduates can speak and write in English, and South Africa largely uses international accounting standards. “By and large, you can just take a South African and put them in London and they know exactly what to do,” she says. “We’re not only competing on the work content, but also in terms of the lifestyle and travel opportunities that international recruiters can offer.”
Adding to South Africa’s own scarcity of accounting and auditing skills is the post-pandemic trend of recruiting people to work from home locally for global firms. “Individuals can earn in euros or pounds, but be based here, which is difficult to compete with,” says Phuthanang.
However, she believes this is a temporary situation that will resolve over time. “Those working remotely for international firms are not exposed to the full audit process,” she explains. “They are brought in to deliver and are exposed to very limited teaching of management skills. As these young workers get a bit older, I believe they will want more room for career progression and a sense of stability.”
Overdue for evolution?
Phuthanang says there’s been no meaningful change in how accounting happens over the past century or so, but as business models, technologies and industries evolve, accounting, along with other service orientated businesses, will need to keep up.
“Traditional industries, such as oil and gas or mining, are still here and play an important role in the economy, but as technological businesses continue to rise, we need to ask if our accounting standards are accommodating new business models,” she says.
As an example, she cites the fact that while internally generated goodwill might significantly contribute to a company’s success, it may not be reflected on the organisation’s balance sheet. “We see all these highly valued tech companies, but that value isn’t shown on the books, which is what we audit,” she says. “We need to consider whether there should be some kind of marriage between the market value of a company and the book value. Otherwise, audit will become obsolete if people can no longer see value in it.”
Phuthanang says that standards may also need to incorporate ESG, which is currently in its infancy in terms of reporting. She says there needs to be consensus on what is measured and reported.
Furthermore, in the investment space, she says we also need to begin to cater for less sophisticated investors as technology provides new opportunities for new players to join the market.
“Yes, we still have investors like banks and private equity firms, but my 11-year-old heard about Easy Equities at school and asked to open an account, so he’s now using his pocket money to buy shares,” she says. “If you think of the broad range of people now investing, they are looking for communications with reduced jargon. We will see this in accounting too, where people don’t just want the financial statements, they want us to communicate what they mean.”
While smaller accounting and audit firms may not have the same resources to invest in technology or to take on work from enterprises with high levels of business complexity, Phuthanang says they are able to find smart ways of working to ensure they keep abreast of technology developments and new ways of working.
“For young accountants today, it’s actually easier than when I was doing my articles almost 20 years ago,” she says. “They’ve grown up with technology. We should all be listening to podcasts, watching YouTube and staying up-to-date through these tools that are available. Most cloud accounting systems work similarly, and we need to be able to understand those systems and how to use them. If all the data is in the system, how do we analyse it smartly, without having to ask for general ledger dumps?”
Phuthanang believes that firms need to recruit people who are “curious about technology” and that trainees who are anti-technology in this day and age will struggle to prove themselves as assets to their teams. Technology, such as no-code tools, needs to be embedded into education systems, and into training.
“As auditors, we’re no longer going to be looking only at transactions and at historical data, but at areas of judgment,” says Phuthanang. “We will need to think about things like continuous audit, because people don’t want an opinion on something that happened 15 months ago.”
She notes that there continues to be pressure on audit fees, and audit needs to justify its value. “We need to consider future outlooks,” she says. “We need to start to think about non-financial elements. For example, in a subscription-based business, are subscriptions growing? We also need to consider risks. Cybersecurity is a major risk.”
Finally, she says, the cyclical argument around market dominance should be resolved. “Every few years, governments express concern about the big firms and there’s talk about splitting consulting businesses from auditing businesses,” she says. “We should decide – do we want to legislate that there must be indigenous firms in all of these geographical locations, or we make peace that globally we've got the Big Four, whether you're in Brazil, New Zealand, Singapore, or Canada; there’s the Big Four and then there’s everyone else.”
Ultimately, Phuthanang says, the accounting and auditing professions need to be intentional in how they are going to transform.