Has there ever been a more challenging time to be an accountant? Or, to put it another way, is the accounting profession now so turbulent that many of us would rather be actuaries? The consensus view of a panel of authoritative figures debating the current state of the profession at our RSM annual international conference was that auditors need to do much more to show that they add value, or risk the process being seen as irrelevant. In the words of Bob Dohrer, RSM’s Global Leader for Quality and Risk, who chaired the debate: “if we as auditors are not warning the market of systemic risks, then what are we there for?”
The panel – comprising Gu Ren-rong, Managing Partner of RSM China CPAs; Richard Caturano, Chairman from the American Institute of Certified Public Accountants (AICPA) and a partner in RSM’s member firm in the USA, McGladrey LLP; John Capper, Executive Director of the European Group of International Accounting Networks and Associations (EGIAN); Olivier Boutellis-Taft, CEO of the Fédération des Experts Comptables Européens (FEE); and Professor Arnold Schilder, Chairman of the International Auditing and Assurance Standards Board (IAASB) – painted a challenging environment, but agreed that, in some ways, the importance of audit has never been greater.
The global financial crisis has raised issues of trust for the profession and called into question the relevance of audit in terms of providing an early warning system. Professor Arnold Shilder explained how a greater focus on the risks impacting businesses had led to a need for more information, but that doubts about the ability of the audit profession to provide meaningful information needed to be overcome. Olivier Boutellis-Taft concurred, adding that with increased demand for transparency and higher ethical expectations, the need for auditors to provide assurance was greater than ever. The irony of this position was certainly not lost on me: the kind of information that auditors are ideally placed to provide is more vital to the global economy than ever before, but the belief that auditors can reliably deliver that information has been shaken to its core.
The dominance of the Big 4, and the arguments for compulsory auditor rotation, were discussed in some detail. John Capper pointed out that, of the 160 or so European banks that were bailed out following the financial crisis, all had received clean bills of health from auditors, and that there is now a real danger that the profession will have to contend with a third layer of regulation from the EU as a result. The belief that a more competitive audit profession might have alerted the market to the impending crisis is a persuasive, though clearly counter-factual argument which we should be wary of.
Despite the power of the Big 4, in China at least, market dynamics rather than increased regulation, is the greatest threat to Big 4 dominance. Gu Ren-rong pointed out that RSM China, which is the fifth largest firm in the country, should be challenging the Big 4 on fee income over the next year or so. So, the market in an avowedly communist state might do to Big 4 dominance what markets in the West have failed to achieve – another fascinating irony!
Arguing against regulation, Richard Caturano said that mandatory audit rotation should be opposed as a matter of principle. Firms outside of the Big 4 who are keen to gain a greater share of the audit market should focus on having stronger networks and delivering better client service, rather than hoping for regulatory intervention. John Capper took a slightly different stance arguing that, while he was not in favour of compulsory auditor rotation, regulation might be the only way to improve competition. Joint or shared audits, he suggested, might be a better solution than plain rotation, which might simply result in audits being passed around the Big 4.
The accountancy profession has been deeply affected by the financial crisis. Some of the changes which are being suggested could potentially be revolutionary. In the context of the information age, suggesting that auditors could be irrelevant just seems absurd, but it is up to us to raise our game and prove our value – or face greater regulation and public scepticism. In short, either we get our house in order, or someone else will.
Note: I would like to thank the panel of presenters for their time and professional insights providing the delegates at our conference with an engaging session of such importance.
