A Manifesto for Audit

25 November 2020: Chief Executive Michael Izza introduces the Audit Manifesto, the latest part of ICAEW’s response to the modernisation of the profession, and the five principles which sit at its core.

After the tribulations of the last three years, it would be easy to see the modernisation of audit as a process in which others lead and auditors follow. After all, in that time, as well as the near-constant media scrutiny and political criticism we have had no fewer than three full-blown external reviews: examining the regulation and resilience of the sector, as well as the quality and effectiveness of the audit product itself. 

But in truth, making audit fit for the future is a tripartite undertaking, requiring decisive and concerted action by the regulator, by government and by the profession. As Sir Donald Brydon put it in his report last year: ‘audit is not broken but it has lost its way, and all the actors in the audit process bear some measure of responsibility’. 

The FRC, under the energetic new leadership of Sir Jon Thompson, has not waited for its transition into ARGA before starting work. It has taken forward the implementation of many changes recommended by Sir John Kingman and has also brokered discussions with the largest firms on issues such as operational separation and managed shared audit. This has not always been a comfortable experience for everyone, but today’s FRC seems a long way from the ‘useless and toothless’ caricature popularised by the Select Committees’ inquiry into the collapse of Carillion in 2018. 

BEIS has sometimes struggled to match that pace – but then we have had three Secretaries of State during this period so that probably has not helped. Neither, frankly, have the demands made on ministerial bandwidth by Brexit and now the economic impact of COVID-19. Nevertheless, we expect to see a major public consultation launched very soon on the government’s proposals for audit reform, with legislation starting its journey through Parliament by the middle of next year.

Today I am proud to introduce to you the latest part of our profession’s response to the challenge of modernisation – what we are calling the Audit Manifesto. It demonstrates positive thinking about what lies ahead for audit and its wider role as a force for good in the economy and society. 

Over the past few years, ICAEW has hosted the AuditFutures programme. Its innovative, cross-professional approach has opened and sustained dialogues on audit and its future. Over a thousand people have participated in its activities: from accounting students and trainees to seasoned professionals, from auditors and accountants to designers and philosophers.

From the insights provided by this engagement, AuditFutures has distilled the five principles which sit at the core of the Audit Manifesto. We believe they have relevance and resonance well beyond the community of auditors: they can help to advance the wider policy debate and support the development of a modern audit profession.

The first principle is that auditors should be able to articulate, uphold and communicate the profession’s social and economic purpose.
A meaningful and relevant purpose of audit underpins the social contract and legitimacy of the profession and can inspire, attract and retain responsive and talented people.

Our second principle is focused on developing and promoting the distinctive identity of the audit professional.
A distinctive professional identity is linked to how individuals see their work. The cultivation of identity is a continuous journey throughout the various steps of professional preparation and is reinforced through lifelong learning and practice.

The third principle is about fostering a collaborative learning community for the professional practice of audit.
A modern profession should facilitate learning between firms and create precompetitive spaces that advance its knowledge and promote its social and economic role. 

Our fourth principle is to support holistic professional formation and education.
Powerful educational experiences can foster a sense of liberation and commitment. This requires holistic attention to the conditions, theory and approaches to learning to increase attention to developing curiosity, scepticism and critical thinking. 

The fifth principle is about adopting a ‘design mindset’ to think and work differently.
A modern audit profession should reach out beyond its traditional stakeholders. In order to be trusted and responsive to the evolving needs of business and society, it has to find ways to engage more widely and deeply. 

Taken together, the principles call for serious attention to purpose, identity, community, education and mindset. There are no simple solutions. All of those in the corporate reporting ecosystem will need to challenge not just each other’s assumptions, but their own too. 

To return to Sir Donald Brydon’s comment, here is an opportunity for all of us to take responsibility. The regulator and the government are making progress. I commend this manifesto to auditors everywhere as a way of framing our contribution to reshaping and rebuilding the profession: once again affirming auditors’ commitment to serve the public interest and strengthening trust in audit and its vital role in sustaining business confidence and economic performance.

The Audit Manifesto will be published in full next week but is available today in executive summary format from the ICAEW website. In-depth essays, exploring in detail the professional and technical aspects of each of the five principles, will follow. In 2021, ICAEW, through AuditFutures, will launch an engagement campaign based on the manifesto, actively seeking input and participation from the wider players in the ecosystem in which the profession operates. This will include voices from business, civil society, other professions and policymakers.