Audit's need to embrace new future

Trust breakdown

Several key factors have contributed to the rising complexity of global regulatory requirements in audit. Major financial scandals have shaken public trust in reporting and auditing – the collapse of Enron in 2001 and the global financial crash 2007-08 exposed significant weaknesses in audit practices and regulatory oversight. Governments and regulators worldwide responded by implementing more robust frameworks aimed at increasing accountability and transparency.

Another significant driver is the globalisation of business. As companies expand operations internationally, there is a greater need for consistent regulatory standards across borders. This has led to collaborations among regulatory bodies to develop harmonised standards and frameworks that take into account diverse economic and cultural contexts.

Holistic view

The growing emphasis on environmental, social and governance (ESG) factors is also reshaping the regulatory landscape. Stakeholders are increasingly demanding that companies disclose their ESG practices and impacts. New regulations focused on sustainability reporting are emerging, reflecting a broader societal commitment to environmental stewardship and corporate responsibility.

The rise of integrated reporting is having an impact. This approach combines financial and non-financial information to provide a holistic view of an organisation’s performance. Regulatory bodies are increasingly encouraging companies to embrace this connectivity in their reporting, recognising that traditional financial statements alone do not capture the full spectrum of value creation.

And regulatory bodies are adopting a more proactive stance in enforcing compliance, with the establishment of specialised regulatory teams. For example, audit firms in the Netherlands have to report to the financial markets authority, the AFM, on each statutory audit opinion issued, with 70 client-specific data points. With CSRD reporting coming up, such reporting is likely to be extended to include CSRD items. Each EU member state will designate specific authorities responsible for overseeing compliance with the CSRD.

There are a number of tech tools at firms’ disposal to ensure compliance (including data analytics such as Power BI and Tableau, plus blockchain applications and AI), and auditors will need to skill up in these to cope with the growing burden.

Meanwhile, the introduction of ISSA 5000 marks a significant step forward in the realm of environmental reporting. This new standard is designed to improve the reliability and consistency of sustainability information, ultimately enhancing stakeholder trust. However, its implementation will require audit firms to adapt their methodologies and invest in training.

Rapid adaptation

One of the most pressing challenges is the need for rapid adaptation. Firms must continuously update their practices and methodologies to comply with new regulations, which can strain resources and require significant investments in training and technology. To navigate this complex landscape, audit firms will need to embrace digital transformation.

The integration of advanced technologies, such as artificial intelligence and data analytics, can enhance the efficiency and effectiveness of audits. By leveraging these tools, firms can streamline processes, improve accuracy and provide deeper insights into clients’ operations. This technological investment is crucial not only for compliance but also for maintaining a competitive edge in an increasingly crowded market with capacity issues.

The audit profession has historically struggled to appeal to graduate-level candidates, and the challenges in attracting talent show no signs of easing as regulatory requirements become more complex, and the workload and expectations placed on auditors increase.

This reality may deter potential candidates who are seeking work-life balance and manageable workloads. To counteract this trend, audit firms must prioritise creating a supportive and engaging workplace culture. They should emphasise professional development opportunities, foster a sense of purpose in the work being done and promote a positive work-life balance.

The opportunity

While all these challenges are significant, there are also opportunities for audit firms to innovate and improve their practices. Firms need to be agile, invest in technology and make changes to attract and retain top talent. By embracing this new and evolving landscape, the audit profession can enhance its credibility and relevance in a world that increasingly values transparency and responsibility. We will play a crucial role in fostering trust and confidence in the financial markets and beyond.