Question

Corporate governance is a household word today following the spate of company collapses. Unfortunately, its use in every form has an element, which tend to castigate auditors, thus often eroding the public confidence that auditors used to enjoy in the 19th and 20th century. What are the strategies to be adopted to redeem auditors’ image in the 21st century?

Answer 1

The following strategies to be adopted to redeem auditors’ image in the 21st century:

1. Transparency

Increased transparency on how an auditors has discharged its duties is crucial and enables a more informed assessment of its performance and effectiveness. Many corporate governance codes and regulations include requirements around auditors disclosure. In addition, voluntary disclosures is grow continuously, reflecting that auditors are responding to evolving expectations of investors and other stakeholders. For auditors reporting to be meaningful, there needs to be strong and candid disclosure of the auditor’s work and key areas of its agenda and discussions. Such disclosure should provide insights on the significant issues the auditors considered in relation to the financial statements, and how these issues were addressed.

2. Effective communication

Effective communications between auditors, their clients and relevant government authorities are most import for effective outcome of the audit. This includes written and in person, formal and informal, communication with management, internal and external audit, the CFO and finance function, and the board. The auditors needs to communicate with the board how it has discharged its responsibilities. It is not enough for the board to simply ‘rubber stamp’ reports from the auditors; there needs to be full discussion and deliberation on key aspects of the auditor’s work and any significant issues they have identified that warrant the full board’s attention.

3. Audit team composition

Ensuring the right composition of the team of auditors is vital but can be challenging. Requirements vary across jurisdictions, but generally there must be at least one member who is financially literate. Diversity of experience, perspectives and expertise, as well as industry knowledge are also extremely important, particularly given the widening mandates of auditors beyond financial reporting oversight. Auditors members need continuing development, training and education to help them keep up-to-date on current issues. But often there is no formal education for auditors members and even cases where auditors members have never interacted with auditors prior to joining the auditors. Training programs, guidance and other support tools are essential to ensure the auditors maintains knowledge of relevant developments in accounting and corporate reporting, as well as new technologies and their impact on the business and future of audit.

4. Quality of work

With increased workload along with increased complexity of risks on their agendas, auditors need efficient and effective ways of working to ensure they can successfully discharge their oversight responsibilities. Good practices includes setting out a clear scope of responsibilities by the auditors members, as well as by the board, CFO of client, good coordination between auditor, auditors, and internal auditor, appropriate frequency and efficiency of meetings with focused agendas, preparing short summaries to circulate to auditors members in advance of meetings outlining key areas of focus for discussion.

5. Strength of the finance function

The finance function is responsible for producing reliable and auditable information for external disclosure. The strength of the finance function is therefore critical in supporting the oversight role of the auditors, which can be severely inhibited by a weak finance function that lacks capacity, expertise or effective CFO leadership. Considerations for the auditors include whether the finance function is appropriately staffed and resourced, has suitably qualified people in key positions, as well as whether it has support for its continued development. The auditors also needs to consider whether they should have a role in appointment of key finance staff and finance function succession planning. To maximize the finance function’s value to the business, organizations need mechanisms in place to assess its effectiveness and support its development. Ultimately this responsibility lies with the board but may too be delegated to a committee of the board such as the auditors.