Bashier Adam, CEO of Nexia SAB&T, says audit stakeholders need to define common objectives.
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There are many themes relating to audit transformation in 2022, says Bashier Adam, CEO of Nexia SAB&T. These range from new regulations and auditing standards, to developing talent pipelines and dealing with digitalisation and disruption, among others.
“In South Africa, the profession is dealing with the introduction of the Auditing Profession Amendment Act, which came into effect in April 2021,” says Bashier. “It’s given the regulator (the Independent Regulatory Board for Auditors, IRBA) far-reaching powers, including the power to conduct search and seizure operations in certain circumstances and to subpoena someone with information required for an investigation or disciplinary process, for example.”
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Bashier says that while the Act was introduced with noble intentions, it has also created some unintended consequences. “Nobody wants to be in a profession where someone’s constantly looking over your shoulder and where there is a perception that the regulator’s view is superior to that of the practitioners and the firms who make up the profession,” he says. “This has resulted in a significant amount of attrition in the profession. We’re losing registered auditors at a very rapid pace. And unfortunately, we're not attracting new ones into the profession. Now, depending who you speak to, on which day, they'll give you a different view on that, but I can tell you at the coalface of working with this on a daily basis, attracting new entrants and then retaining them in the profession is an issue.”
Adding to the skills shortage is the arrival of disruptors in the local market. According to Bashier, a number of international companies have set up in South Africa and recruit South African staff, but outsource their services to companies in other regions, such as Europe or the US, on a remote working basis.
“That’s what the pandemic has done for auditing in South Africa,” he says. “It’s shown us that remote working is possible. And the disruptors are making the most of that and sucking the lifeblood out of the profession. Their model is essentially to ‘rent’ an auditor to firms in Europe and the US, and when you compare dollar- or euro-based remuneration to remuneration in rands, it's having a significant impact on the talent and capacity within the South African auditing profession.”
An increased compliance burden is another issue, particularly for smaller firms, along with the impending introduction of new standards, such as the International Standard on Quality Management (ISQM 1), which will come into effect on 15 December 2022. “Smaller firms are really going to battle to keep up,” says Bashier. “I think we may, in the next few years, see the extinction of smaller firms rendering assurance services.”
While mandatory audit firm rotation may help to provide new opportunities for small and medium firms, Bashier says the conservative South African market is still grappling with implementing this change.
“Then, of course, there’s the question on everyone’s mind, which is, ‘How does this profession stay relevant in the age of digitalisation, artificial intelligence, blockchain and all of these nice things?’ As a firm, we’re looking at how we can achieve efficiency through the use of technology, as are many of our peers. It’s not as easy as it sounds, though.”
Bashier believes that the regulators and industry bodies need to play a role in addressing some of these challenges. “These are the people that are supposed to be building and preserving and protecting the profession. We shouldn’t lose sight of the fact that it’s the collective responsibility of us all.”
He adds that in some instances, South Africa seems more resistant to change in the profession than other countries. “For example, in the UK, a firm of auditors could be owned by 51 percent chartered accountants and auditors, with a number of professionals in other disciplines making up the balance. But in South Africa, we still have the rule that a firm of registered auditors must be made up of registered auditors only in terms of ownership. So that limits the kind of multidisciplinary types of services and engagements you're looking at. I think that is important in terms of where the world is going, because we audit in isolation. When it comes to digitisation and artificial intelligence, the guys doing those things are engineers for the most part, not auditors. They need to understand what the objectives, outcome and purpose of an audit is, and they need to understand what the work of an auditor is – they are not auditors, but often form a critical and integral part of audit teams.”
To begin to address the challenges standing in the way of audit transformation, Bashier believes there’s a need for consensus and common objectives among audit stakeholders, particularly between audit firms and practitioners, industry bodies and regulators.
“This profession has stood the test of time and served the world well over centuries, so we need to ensure we keep it relevant. All the mentioned parties have a role to play in taking the profession forward.” he says.
One of the ways of “unshackling” auditing would be to accredit more professional bodies (currently, the only accredited professional accounting body in South Africa is SAICA) and to understand that the profession needs to integrate with other skill sets to remain relevant.
Bashier believes that there is also work to be done in addressing the expectation gap around the role of audit. “Audit provides reasonable assurance on fair presentation of financial statements, but there seems to be an expectation that it should be providing absolute assurance,” he says. “Now, not only is that impractical, for the most part, it's almost impossible.”
He believes that overregulation and compliance risk turning audit into a check-box exercise, potentially missing real issues. “Auditors become so fearful of not ‘ticking the boxes’ that the risk of not focussing on potential real and material issues is increased significantly,” he says. “It also has the undesired outcome of the profession losing good, experienced auditors who are no longer available then to mentor the next generation.”
He says the profession is viewed as less attractive than before on a global level, which needs to be addressed. “We almost need to reinvent the profession,” he says. “We need to change the narrative, because people only remember the one bad thing that happens – not the many good things that auditors do. We need to get the message out about what auditors actually do, and the value they do add.”
Bashier says this is starting to happen through an understanding of “combined assurance”, which encompasses internal stakeholders, and various external stakeholders, of which the auditors are one. However, he believes there is still much work to be done.
“I’m not for one second saying the auditors are perfect. But all stakeholders need to realise that they are not perfect either. And if we can all lay our imperfections on the table and start to talk about how we can deal with them as a collective, we can take the profession forward,” he concludes.