Q: As the influence of AI on the profession grows, who will audit the algorithm?
A: Technology is already changing the face of the audit profession, allowing firms to perform audits more efficiently. It is also likely to reduce the risk that material misstatements may go unnoticed. The pace of technological change will inevitably mean that some audit tasks will be eliminated.
But as powerful as these tools are, or are expected to become, they are not substitutes for the auditor’s knowledge and experience, for the professional judgements they need to make and the exercise of professional scepticism. Arguably, these skills will be even more important in an increasingly technology-enabled world. After all, who will decide what information should be fed into technology-enabled tools? Who will interpret and communicate the results? And who will ensure that end users can rely on the output from these tools and have a good understanding as to how risks such as cyber threats have been mitigated?
To manage new risks in the audit process, auditors will be needed to validate the design and controls around the platforms that host the new software and to interpret the complex data sets that arise. The profession will also need to develop people with a different range of skills.
For example, they will need auditors with accounting skills who have a sufficiently advanced understanding of relevant IT.
But the profession cannot achieve this transformation by itself. Regulators and standard setters will need to work closely with audit firms to make changes to standards and other regulatory requirements to reflect and help shape audit firms’ methodologies and practices.
For more information on the challenges facing the audit profession, see The Future of Audit: Technology paper produced by ICAEW’s Audit and Assurance Faculty.
Peter Mandich, manager at ICAEW’s Audit and Assurance Faculty
Q: how best can we safeguard ourselves from losing our most talented staff?
A: Talent retention is a problem facing the UK economy as a whole, but this is most keenly felt among small to medium-sized professional services firms. It is difficult to offer the competitive packages and level of training and development that the larger firms offer in-house.
At ICAEW, the Academy of Professional Development offers a complete suite of CPD courses and two leadership development programmes designed exclusively for the professional services audience. The Academy programmes are open to all as ICAEW believes that everyone should be able to benefit from industry-leading expertise and knowledge.
The Institute has worked with firms such as Crowe Clark Whitehill, MHA MacIntyre Hudson and Anderson Anderson and Brown to deliver tailored leadership and partner management programmes. The DLiP™ (Developing Leadership in Practice) programme is popular within the sector for partner development. Top talents from practices embark on a five-month transformative leadership programme to prepare them mentally for the challenges of partnership. You can no longer afford to let natural selection take its course. To keep your senior ranks full, you must help the professionals whom you have cultivated move on to the next level. This also applies to digital and technology disruptors, who require a shift in how future partners lead the firm, and move from a traditional role to a more rounded business advisory role.
The Academy’s leadership programmes and CPD courses are an ideal method of succession planning as you cultivate the next generation of leaders, and they return to their roles with renewed tenacity and drive, while still retaining the culture of the firm.
These programmes all have a common theme: a clear path to help people realise their potential while transforming them from a technical expert to a commercially confident leader.
Dharmesh Chheda, head of the ICAEW Academy
Q: Does your PII cover you for a complaint?
A: ICAEW has arrangements in place that require firms engaged in public practice or carrying on regulated activity to hold “qualifying insurance” with a participating insurer. This is PI cover, which complies with ICAEW’s minimum approved wording and provides at least six years of retroactive cover. The wording provides cover for claims of civil liability arising out of or in connection with the firm’s “professional business”. Broadly, this is defined as advice or services carried on by the firm. So a policy of qualifying insurance with a participating insurer should, subject to policy terms and conditions, provide cover for a claim in negligence by a third party up to the limit of indemnity. It will also cover for some or all of the costs incurred by the firm in defending the claim, and any claimant’s costs for which the firm may be liable.
Cover for disciplinary and regulatory fines and penalties is expressly excluded from the policy. Nor is cover currently in place for the costs in defending such proceedings. Insurers may already offer this cover in their policies, and, even if they don’t, firms may be able to arrange for it to be added. It is therefore vital that firms:
- Take the time to read and fully understand the terms and conditions of their policy
- Disclose in full the nature of their activities to their broker and insurer
- Take advice from their broker on the right type of cover for their firm
Claire Phillips, ICAEW legal and regulatory counsel, Professional Standards
Do you have an issue that’s puzzling you or a colleague? Do you need advice about retention, regulation, growth or technology? Please email us at email@example.com and we’ll find the answer for you
Five in brief
New data protection regulations come into force on 24 May, 2018. These require organisations to ensure the data they hold is audited, well documented and that data collections procedures are compliant. There are swingeing penalties for non-compliance.
2# Gender pay gap
Organisations with more than 250 employees must disclose their gender pay gap. New regulations introducing penalties for failure to do so come into operation on 4 April.
3# Charity auditor reporting
The Charity Commission has recently published a reminder of the new reporting requirement, introduced last year, for auditors to report material misstatements to the regulator. Many auditors have yet to report.
4# FRC guidance post-Carillion
Following Carillion’s collapse, the FRC released guidance reminding companies in the construction and business support services sectors of their reporting obligations. Does it apply to you?
5# Auditing FRS 105 accounts
Some auditors are being asked to express an opinion on FRS 105 accounts. A new ICAEW helpsheet on micro-entities provides guidance.