When EU Commissioner Michel Barnier made his now infamous comments in the immediate aftermath of the financial crisis that the credit shock represented a major failure of auditors to identify structural risks and systemic weaknesses in large financial institutions (he called auditors “the watchdogs that didn’t bark”), it was seen by many as a potential driver to spark a genuine revolution in the way not only audit functioned, but also in the way the entire system of capitalist democracy operated.
The end of the age of greed and of rapacious “vulture capitalism” would give rise to a more enlightened age of responsible capitalism, long-term stewardship and even something obliquely called “stakeholder capitalism”. If nothing else happened, it was clear that we were in for a period of upheaval in the audit profession.
Now, five years on, auditors and audit firms of all sizes face a different landscape. While not many of the ideas on a new brand of capitalism have come to much (notwithstanding the current ubiquity of Thomas Piketty’s thoughts on the subject), the years since they were accused of not barking has seen audit professionals face a tumultuous series of changes and challenges. With fingers pointed at them for everything from anti-competitive behaviour and over-concentration to overly cosy relationships with clients and regulators, the world of audit has experienced a period of regulatory upheaval, as new rules on rotation and tendering seek to break down any perceived cosiness and anti-competitive relationships.
But as we apparently head out of the worst of the recession and back into a period of global growth, it seems a sensible time to look across the world, and in particular at the major global capital markets, and ask what has changed. In particular there needs to be a focus on where the profession is heading, what state it is currently in and where it is heading. What does the practice of audit in 2014 look and feel like? Is it stronger for the close scrutiny it has endured? Has the examination of the impact of the overwhelming concentration of large audits in the hands of a small group of firms had an impact? Is it true that audit committees are pushing their managements to consider tendering and rotation in advance of new rules? Has all this new regulatory activity brought advantages for the buyers and practitioners of audit? And above all, what do changes mean for the public? Are markets safer places for smaller investors many of whom go about their business with little interest in the detailed issues dogging this small corner of a complex profession.
Indeed, does public trust in this context matter as much as some think? And will the tweaks to rules on which of the Big Four gets to handle which audit when really make a difference to public trust if it does?
We wanted to know the answers to some of these questions, as well as to examine what the future holds. If the last five years have been an upheaval, what do the next 10 years hold? What role can audit play in protecting investors and shareholders in an era of high frequency trading, where the units of time with any real currency are milliseconds and months, years or quarters? And how have all these changes affected local capital markets differently? Are there common areas of global impact, or is every local market too different to generalise?
To start to answer these and many more questions, economia is today launching the Value of Audit discussion series, in association with KPMG. Taking the form of a series of open roundtable discussions hosted in the major capital markets around the world (so far, London, Johannesburg and Frankfurt are confirmed) the ambition is to address these questions for the profession with groups of representatives from all corners of the profession: with each panel including regulators and standard setters, auditors, CFOs and audit committee chairs, investor representatives and other corporate governance experts.
The first session takes place in London on 13 May and the panel includes KPMG’s UK head of audit Tony Cates and Mark Vaessen KPMG’s global head of IFRS, Pearson’s CFO Robin Freestone, Melanie McLaren, the FRC’s executive director for codes and standards, Peter Montagnon, associate director at the Institute of Business Ethics, Paul Boyle, Aviva’s chief audit officer, Will Pomroy, NAPF policy lead on governance issues, and audit committee chairman and Alan Ferguson, non-executive director and chair of four audit committees.
But we’d also like to get input from right across the profession including your input. In the final part of the session we’ll be hosting a Twitter Q&A, with the panel asked questions submitted to them via Twitter. You can submit your questions using the hashtag #valueofaudit. If you’re not on Twitter, you can also email email@example.com with the subject line Value of Audit.
Richard Cree is editor of economia
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