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Recovery and trust go hand in hand

4 June 2020: The relationship between a client and chartered accountant has always been one of trusted adviser. We talk to Philip Tsai about recovery and trust in these heightened times.

These are extreme circumstances for Boards and their professional advisers. Never before have they been so physically distant and yet, through technology, auditors and preparers are being drawn deeper into the corporate environment and the relationships are becoming more heightened.

Philip Tsai is the recently retired Chairman of Deloitte China and is now Partner Emeritus, based in Hong Kong. Commenting on the bonding with clients under pandemic conditions, he says: “There has been much more discussion between the Audit Committee Chairs of listed clients and our audit colleagues in the weeks leading up to reporting deadlines. This has enabled the clients and engagement teams to become much closer in resolving issues.” Technology has been the uniting factor.

“This situation will put the profession, once again, under the spotlight but, hopefully, less harshly than in prior years,” he says. “Clients have been a lot more open when it comes to sharing data on their systems. We have had easier access to even more information when carrying out our audit work.”

And it is likely that the profession will not return entirely to the old way of being physically present. “Is that likely to be the direction of travel in the future? Probably,” comments Tsai.

But let’s be frank. At this stage of the pandemic we are not really talking about recovery; we are talking about taking stock and figuring out what the first and second quarters of 2020 have meant for different sectors, different business sizes, the supply chains, and various economic initiatives. Lots of what we always knew to be the case is now in tatters and we are grappling with a new set of circumstances for conducting business that are still hard to define. Change has come at a sprint. All this has had an impact on the profession.

Tsai takes us back to the beginning of the pandemic – for him this was his journey back from the World Economic Forum in Davos at the end of January, in time for the Chinese New Year. That week-long holiday was extended to two weeks and then to three in some provinces in China.

“You can imagine that, from the profession’s perspective, February was a very difficult month. Our clients’ businesses could not open for those three weeks. We ran into cash flow issues,” he says. “In addition, the impact on the global supply chain was very significant.”

In Davos, Tsai and his fellow delegates discussed what then seemed pressing issues such as the Internet of Things, Industry 4.0, and how the world is closely connected. Then came the pandemic and all those issues have been hugely tested – and, largely, they have performed very well.

Getting through February was tough – and any listed company in Hong Kong with a December year end had to struggle to get their financials in shape for reporting by the end of March. “With the prohibition on travelling from Hong Kong to Mainland China, our auditors were not able to visit our listed clients’ operations in the Mainland,” Tsai points out.

“We had to make a lot of adjustments to the way in which we performed audits to meet the reporting deadlines for listed companies,” says Tsai, adding there were no blanket exemptions to the reporting rules; just the understanding that unaudited accounts could be published before the March 31 deadline, to be followed by audited accounts as and when available.

“We managed to complete around 75% of listed company accounts with a December year end by 31 March with the rest following in April,” says Tsai.” This is very much in keeping with other Hong Kong firms. But we have had to improvise."

These improvisations are very much the basis for the way Tsai sees things moving in the future: automation and more reliance on technology. In fact, these are the very pillars on which the future of audit was expected to be built before issues around trust in the profession prompted us to ask more searching questions.

“The litmus test for how well we have adapted will come at the end of June when the Q1 results are due for most companies, as well as the accounts for the companies with a March year end,” he says, reminding us that it is too soon to celebrate and that many sectors the world over will be in distress.

What has been the crux of the role of the profession in all this? Tsai responds: “The audit and assurance side of the business has been very busy in the first couple of months of this year. In the advisory side of the business, we have made some adjustments to the types of services we offer, especially during the COVID-19 pandemic. Where there are best practices we have shared them with our clients. We have organised webcasts for and issued publications to our clients to communicate what works.”

He continues: “Of course, there will be some restructurings, mergers and acquisitions and insolvencies amongst businesses and so information sharing will be vital for many.”

However draconian the situation has been, will this new thinking stand the profession in good stead? “Yes,” says Tsai. “All this bonding with clients will stand us in good stead. It all comes back to trust which is always the bedrock for quality professional services.”