Read candid and sometimes surprising views of KPMG’s audit leaders on the value of an audit – its strengths, weaknesses and the changes they believe must take place to meet the needs of the capital markets.
Senior KPMG partners from countries with different experiences of the global financial crisis give their frank and direct personal take on audit’s performance. But this piece isn’t just about looking backwards – the focus is really about seeing how audit can and should evolve to make it a higher value proposition for all involved. The partners have put forward some intriguing ideas for changes which they see as driving quality higher and their personal opinions on improvements, which can increase the relevance of the audit report and hence its value to the company, to its shareholders and to the wider communities in which the companies operate.
Can audit quality coexist with increased fee pressure? How can auditors engage better with users of financial statements? How can auditors ensure their unique insights can be best used to drive value within their clients? You may be surprised at some of the partners’ answers to these questions and at their visions for the evolution of audit. And yet while different individual threads and focuses run through their answers, one unifying theme abides: delivering what markets want.
Historically, the audit profession’s conservatism has been a strength. Auditing company accounts has required a cautious approach. Yet now the rapid change in the nature of how companies create value and how investors judge them demands change and innovation from auditors. In many cases, financial statements no longer give sufficient insight into companies’ changing fortunes. So auditors must evolve themselves in order to remain relevant as a profession.
All five KPMG partners interviewed for this chapter about the audit model and the profession express this view to some degree. They concur that at a time when quarterly investor conference calls may shed more light on the way companies are growing than the financial statements, the audit profession must widen the scope of the information that it offers assurance over in order to give the investor community – and other stakeholders – what they need.
This section summarizes conversations with five KPMG partners occupying leadership roles in member firm audit practices around the world.
Most of the questions were implicitly or explicitly critical of the audit product and profession. It was expected the interviewees would respond defensively. In fact they were candid – sometimes brutally so – about how the profession is perceived by external stakeholders. And while they staunchly defended the value of an audit, they argued that much of the damage has been self-inflicted. Several identified an existential threat to the profession if negative perceptions continue to go unchallenged.
Each of the partners had their own ideas of how firms should respond to this situation, but several themes emerged consistently.