New international audit standards, which will be effective from December 15, 2022, are expected to usher in a complete paradigm shift in the profession’s approach to audit quality, says the global head of a leading accounting and consultancy network.
The International Standards on Quality Management will require audit firms to adopt a proactive risk-based approach to quality as opposed to the current system which focuses on quality control procedures that tend to be reactive “when the horse has already bolted,” says Subarna Banerjee, chairman of UHY International, a UK based network which has offices in 101 countries across all continents.
“These standards are expected to have a profound impact on the quality regimes adopted by audit firms with the ultimate objective of improving audit quality and protecting the profession’s integrity and status,” Banerjee, who is Dubai, said in an interview given to Khaleej Times.
“There is immense pressure from the Financial Reporting Council (FRC) on the largest audit firms in the UK. The FRC has issued a large number of sanctions over the past few years and there ongoing investigations whose outcomes are expected over the coming months. The audit profession has already started implementing measures to adapt to the new requirements, and I am sure that it will get there and there will be an overall increase in audit quality as a result,” said Banerjee.
He noted that over the years the external audit profession has come under increasing scrutiny from the regulators and other stakeholders who are questioning the quality standards in light of numerous audit failures. Significant fines have been issued against major audit firms after regulators expressed concerns over the quality of the audit work.
Asked if audit firms are ready for the impending changes, the audit veteran, who took over as UHY global chairman in October last year, said firms have been preparing for the new quality standards for some time now. “I believe that firms are ready which will result in higher audit quality and reduced audit failures.”
How has the “work from home” trend affected the audits, which are traditionally performed at client premises? “The audit profession has adapted well to working from home. However, I believe there are efficiencies to be gained from working either in the same office or at client sites. I’m hopeful we can see a way to return to work in the office and at clients, at least some of the time, in the near future.”
Refuting the notion that fee pressure has compromised the auditors’ integrity, Banerjee said: “I do not believe that fee pressure and other factors have compromised auditors’ integrity. Regulators around the world are demanding more and more from audit firms and this has become the priority for auditors. The key is for auditors to make sure that their work is of the highest standard whilst still ensuring that clients can see the value of the work delivered.”
Banerjee observed that the auditing profession has evolved significantly over the past ten years. There is much more focus on compliance than was ever the case in the past. This means that auditors must apply maximum effort to ensure that their audits are robust from a quality perspective.