Smaller audit firms need a long-term vision, says PSTM’s Mokgadi Malematsa
Mokgadi Malematsa, director at PSTM, says smaller firms have a responsibility to prepare for opportunities.
This Future of Audit Series interview is proudly brought to you by ACCA.
As the world changes, so the audit profession needs to adapt too, says Mokgadi Malematsa, director at PSTM, a black woman led and owned assurance, tax and advisory firm.
Mokgadi describes the future of audit as exciting, complex and uncertain. “The exciting part is that we live in a time of the fourth industrial revolution, where we have big data, AI, a focus on going green and other major trends shaping the world, which means we need a reshaping of the skills we will need for audit,” she says.
As emerging technologies can offer capabilities that have never been available before, humans have the opportunity to focus on aspects of audit beyond the numbers – to concentrate on elements like ethics and the “sixth sense” that machines don’t have. “We need to prepare for these things, rather than being scared of them,” she says. “We should embrace change rather than fearing it, enjoying the complexities that it brings into our existence.”
Mokgadi adds, however, that we also need to acknowledge that there are elements of the future we cannot prepare for, and to retain a degree of agility as we approach it. Covid-19 has been a very real example of this.
Adapting at speed
For PSTM, a smaller firm without the infrastructure and capital setup of large-scale auditing and consulting businesses, the pandemic highlighted technology and people management gaps that needed to be addressed quickly to ensure its survival. “It wasn’t just the challenge of working online, but also remotely,” says Mokgadi. “I think it’s important to differentiate between the two.”
While the sudden move to having to audit virtually was a challenge in and of itself (for example, auditing physical assets without physically assessing them can be nigh impossible), Mokgadi says that the remote aspect was even harder. “Normally, our teams would be onsite, engaging with clients throughout the audit, but suddenly, you’re doing everything over email or remote meetings, and that limits your engagement,” she says. “It has never been the primary form of communicating with the client.”
On top of this, team members were dealing with the stress of lockdown, family and health challenges, and the difficulties of working from home, which meant that aside from the technical difficulties, there was a heavy emotional burden to consider too. On top of that, there were considerations of data security and physically making the offices safe for employees who did have to come in.
Mokgadi says that auditing is already a high-stress profession and the PSTM directors realised they needed to help their employees to weather the emotional toll that the pandemic took, as well as supporting them on the work front. “We had this window into people’s homes and lives, and we realised how much they go through to produce their work, and we had to be sensitive to that,” she says. “We’ve had to rethink the way we all work, and to do things like train staff to capacitate them to engage with clients professionally online. Productivity did not take a dive as many expected; in fact the opposite. You now have to manage people to prevent over-working because there’s no line between work and home.”
She says that for PSTM, the “new normal” will be a hybrid model of remote and onsite work, and that the balance largely depends on individual clients. Some are keen on implementing more technology, based on the rapid digitisation Covid-19 yielded, while others would prefer a return to full onsite audits.
Competing as a smaller player
“When you’re a Big Four firm, you have brand recognition and brand goodwill, so there’s ‘little introduction needed’, as they say,” Mokgadi says. “At PSTM, all three executive directors come from Big Four backgrounds, but when you start your own business, you quickly realise that you’re seen differently in the market as a small firm, and of course you don’t have the capital that bigger firms have. Access to market remains a challenge, especially in the private sector.”
While the smaller firms are able to cater to a layer of clients that the Big Four would not necessarily service, Mokgadi says that this level of client is also often in a position where financing the audit is more challenging. Retaining talent is also an ongoing challenge for smaller firms.
However, Mokgadi says that the Auditor-General has been instrumental in creating a platform for smaller auditing firms to raise these sorts of issues, and offering funding programmes, as well as projects targeting specifically at small firms. “That’s been very helpful in ensuring that the firm is sustainable long enough to start to gain that brand recognition you need to begin to open doors,” she says. Without this type of support, most start-ups in the audit sector don’t last longer than two or three years.
Mokgadi also underscores the value of partnerships. Building relationships with bigger firms is a win-win approach. It creates opportunities on the projects front – for example, where a joint audit is required – but also in terms of training and development. “In the past, we’ve partnered with a bigger firm to help train some of our staff. The capital outlay for them is the same, whether they’re training five or 10 people,” she says.
This means the smaller firm is able to access training for employees, and the larger firm is able to boost its training and development numbers, which assists in meeting targets. Taking this a step further, Mokgadi says, small firms could second trainees to bigger firms to help expand their experience, and to provide project-specific support to larger firms.
“I believe also smaller firms like ours need to be patient,” she says. “The big four firms did not happen overnight. In being patient, we take a longer-term view. It’s about digging in deep and weathering the storms because you have a long-term vision. And it’s about investing into the profession and rebuilding the brand that is audit. We've all lost a lot through what has happened in recent years. We all need to work together towards rebuilding trust and creating a better pipeline of talent for the future.”
She hopes that the financial reporting sector will be more unified in its approach in future, that more incentives will be put in place for start-ups in the sector, and that regulation will be more effective in preventing corporate failures in the sector. Mokgadi would also like to see the profession embrace the move to report on more than pure financials – to incorporate elements such as climate change, gender parity and transformation – and she hopes that audit can rebuild its public image and attract a pipeline of talented young professionals. “The future presents exciting opportunities. It also leaves us with a responsibility to prepare for those opportunities,” she concludes.