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Attracting and retaining talent, audit file inspections, ISA 315, sustainability assurance standards and technology were hot topics as the profession prepares for the future.

The Audit and Assurance Faculty conference returned to Chartered Accountants’ Hall on 12 October 2022 as a live event. It was an opportunity for attendees to network face to face, discuss recent experiences, explore developments, and share examples of good practices and approaches to some of the changes and practical challenges that auditors and their firms are facing.

A positive tone was set during the welcome by Gilly Lord, Chair of the faculty board and Global Leader, Public Policy and Regulation, PwC, and in the keynote by Julia Penny, ICAEW President. “The conference themes of change and challenge are ever-present in audit and particularly pertinent now,” observed Penny, but the profession is adapting.

The President considered new and revised standards being implemented by auditors and the value of their public interest role. “I can’t emphasise enough how important audit is,” she said. “Auditors know that without audit there’d be less trust in financial information, but sometimes it pays to stop and reflect on that.”

Pride in the profession

“Audit is a purposeful profession and that should help when we are trying to attract new talent. This is a great career for students and young people,” said Penny, while acknowledging that recruitment, retention, capacity and diversity are among the biggest challenges the profession faces – and this was confirmed by the conference attendees.

In a poll on the biggest practical challenges audit firms face today, 73% of attendees selected ‘retaining talent’, ahead of International Standards on Quality Management (ISQMs), profitability, international auditing standards (ISAs) and hybrid working, in this order. This take on ‘big issues’ was reflected by the panellists and informed their discussion.

Panel chair Paul Winrow, Partner, Mazars, was joined by: Catherine Hardinge, Partner, Price Bailey; Rachel Davis, Owner, Just Audit; Alex Peal, Managing Partner, James Cowper Kreston; and David Isherwood, Ethics Partner, BDO. Each shared various insights and perspectives on the challenges and approaches to these.

The panel agreed that the speed and extent of recent and forthcoming changes is unprecedented and has heightened resource concerns. Attracting talent into the industry has become increasingly difficult in recent years, and the widening gap of regulation between Public Interest Entity (PIE) audits and non-PIE audits may, some suggested, further reduce audit’s attractiveness.

Sharing strong stories

Auditors must push back against negative stereotypes and share their experiences within audit and why they love their job. “We can do more to show what is enjoyable and exciting about audit,” said Hardinge, such as the mix of people, getting under the skin of different industries and businesses, identifying risks and ways to address these.

In showing how audit can make a positive difference and highlighting its public interest role, there is more to be done by other stakeholders – including regulators – to help the profession attract and retain talent. To achieve this, the panel agreed, it will be important for stakeholders to have aligned interests and to work together collaboratively.

There was talk around ways to broaden the base of potential candidates. Peal, for example, explained that at James Cowper Kreston, involving managers in the interview process is reducing the bias towards hiring people ‘just like you’, and that this approach has increased diversity among incoming hires, with a knock-on effect among managers, too.

Focusing on flexibility

When focusing on retention, the panel agreed on the need for flexibility and better understanding of employees. Frank discussions on what they want and don’t want can help, although what is learned from this process may not always easily be acted on. It may reveal, for example, that a senior manager is reluctant to become a responsible individual (RI) because they see this move as “too risky” personally.

Hybrid and remote working can increase flexibility, but also create challenges, particularly when a firm is trying to ensure effective collaboration within teams and across multiple office locations. There are many questions to consider. What technology is needed? Does home working suit everyone? Can traditional offices become a better fit for workers in the post-COVID-19 world?

Burning questions

The questions continued during a panel Q&A. This covered the importance of firm culture, impacts of ISQM 1, how smaller firms compete against larger firms, the journey (or not) to partner, the impact of mental health and work/life balance on morale and retention, and how recent and forthcoming developments may impact firm profitability.

On the latter issue, panellists had various suggestions. Auditors could be braver: “Tell the client, ‘I can’t do the audit for that fee,’ or ‘We are not doing it anymore,’” – as the Ethical Standard and ISQMs make this easier. Using technology to support audit quality and efficiency got a mention. Change and challenge aside, however, the profitability bottom line remains. “The equation is, what you charge versus what you spend.”

Audit file inspections – key findings and insights

In this session, Ed Cadby, Inspection Lead at the Financial Reporting Council (FRC), and Nick Reynolds, Senior Manager in ICAEW’s Quality Assurance Department (QAD), provided insights: good practices seen on audit inspections, areas where firms need to continue to improve audit quality, and priorities for 2023.

Notable were the good practice illustrations. Cadby shared an example seen by the FRC at a smaller practice where only limited improvements were needed. During the inspection, the leadership team and middle management were confident, answered questions well and, in turn, asked insightful questions. On further investigation it became clear that both the culture of the firm and a very good training programme had been important in enabling employees at all levels to feel confident, take ownership of audits and be empowered to challenge, within the audit firm and at clients.

Reynolds pointed to an example of a firm’s strategy, which focused on retaining staff and clients and recruiting new employees who would fit well with the culture of the firm (after a period of instability), as key to helping to drive a quality strategy.

Where improvements were needed, similar themes were identified across QAD and FRC inspections. The audit of revenue, ethical considerations, asset valuation and misstatements in the accounts were given particular prominence, and illustrations were provided.

As priorities for 2023, Cadby highlighted areas including climate-related risks and cash and cash equivalents. He also pointed to help for firms, such as the FRC publication What Makes a Good Audit? Reynolds focused on ISQM 1. As firms shift from design and implementation to operation of their system of quality management (SoQM), QAD will survey a sample of firms to learn more about risk assessments and impact on quality objectives and whole firm procedures. During monitoring visits, the focus will be on testing of the SoQMs and sharing good practices.

ISA 315: laying strong foundations for effective and efficient audit

Rhodri Whitlock, Assurance and Advisory Consultant, HPL Associates, presented an action-packed session on the revised ISA 315 on risk assessment, bringing some fresh angles given his combined experience of being an audit quality partner and having worked with the Financial Reporting Council.

There were some important overall messages on the revised standard.

Whitlock likened the risk assessment process for an audit to organising a holiday: you don’t leap in without research – you meticulously search hotels and flights until you have the best deal. Similarly, robust audit planning – and an efficient risk assessment with a targeted audit response – will pay dividends later, with more efficient work to accumulate sufficient appropriate audit evidence.

Sustainability, climate change and the auditor

During this breakout session, Sue Almond, member of the International Auditing and Assurance Standards Board (IAASB), and Consultant at Grant Thornton, discussed the timeline for sustainability assurance standards and other areas on the IAASB workplan.

Almond was clear that the overarching ISAE 3000 standard, and four more specific standards that sit under it – including ISAE 3410 Assurance engagements on Greenhouse gases – are fit for purpose. However, as feedback indicated that specificity in relation to climate assurance would be useful, IAASB has (unusually) changed its workplan, to begin a project to develop an overarching assurance standard for assurance on sustainability reporting.

The scope of the proposed new standard will be broad, covering all areas of sustainability, from climate to labour practices, with many types of information including metrics and targets. The project will address all elements of an engagement, from acceptance to reporting, but the proposed standard will be framework-neutral to minimise the risk of fragmentation and to assist global take-up. Assurance will be both limited and reasonable. The proposed standard will not replace ISAE 3000, nor sit under it.

An exposure draft is expected in September 2023 with plans for a 120-day comment period (with a further timeline established based on the extent of comments received). In the meantime, Almond pointed participants to IAASB’s Staff Audit Practice Alert, The Consideration of Climate-Related Risks in an Audit of Financial Statements to assist auditors’ understanding of how existing International Standards on Auditing (ISA) relate to considerations of climate-related risks in an audit of financial statements.

How is technology changing what and how we audit?

Technology continues to impact how we live and work. In his breakout session, Ashwin Sharma, UK&I Territory Manager, Audit, at Confirmation, explored how technology is enhancing audit quality.

Sharma highlighted the ability of technology to automate previously manual tasks, improve audit efficiency, streamline audit processes and free up staff to focus on more judgemental areas. Technology can help firms to analyse and interrogate data in different ways, not only helping to improve audit quality, but adding value to their clients – something that is no longer just the preserve of the biggest firms. Sharma did, however, emphasise the need to understand the limitations of technology, too, using judgement to understand those situations where human beings may be better placed to undertake a task.

There is increasing focus in auditing standards on automated tools and techniques and Sharma explored the important factors to consider when choosing a technology provider, including understanding what they can offer now and what they may be able to offer in the future.

In this highly competitive world, where resources are limited, Sharma also underlined the ability of technology to help attract and retain talent. As the skills base of the next generation of auditors changes, Sharma considered the future of auditing and what this might look like, including areas such as open banking, which can offer a different way of thinking about auditing

Audit & Beyond

This article was first featured in the December 2022/January 2023 edition of Audit & Beyond.

Audit & Beyond Dec/Jan 2022/23