Is the auditing profession ripe for disruption?
That’s the takeaway from a recent statements attributed KPMG UK’s former head John Griffith-Jones, now regulator for the UK’s Financial Conduct Authority. As the Financial Times’ Adam Jones reports, Griffith-Jones recently told an audience in London that members of the profession were supplying information that was “less and less useful to the world at large.”
At the heart of Griffith-Jones’ critique is the failure of auditors to catch the excesses that led to the financial crisis of 2007-2009, that continues to reverberate today. The problem, is that auditors’ reports are too “formulaic,” and only provide “pass or fail” evaluations of an organization’s accounting practices and financial health.
Consider one of the most recent victims of such narrow auditing practices — HP, in the aftermath of its acquisition of Autonomy. HP’s management says it was not aware of the deep financial issues Autonomy had hidden under the covers.
The economy is global in scope now, and businesses are getting more and more complex, interacting with networks of contractors, partners and supply chains, as well as dealing with mandates and regulations.
At the same time, there is more and more data and information available on every aspect of enterprises. The “Big Data” that is flowing in from every corner of the organization — as well as customers’ and partners’ organizations — means there is a digital record of everything that is going on, from lunchroom receipts to inventory stock levels. There is opportunity to get to a wider view of what’s happening in organizations. Business leaders are certainly demanding such capabilities, given the non-stop growth in business analytics software.
In a follow-up post, GoingConcern’s Adrienne Gonzalez points out that Griffith-Jones is hitting on an uncomfortable truth: many auditors are delivering stilted snapshots that often miss the big picture. “Griffith-Jones verbalized what many of us already know and have been saying for years,” says Gonzalez. “Here in the U.S., our delicate, mysterious audit regulator doesn’t help matters by putting out cryptic guidance and criticizing audit firms without informing issuer audit committees of issues, among other crimes.”
There has been some impetus among accounting boards to add more meat to auditing reports, Gonzalez also reports. The International Auditing and Assurance Standards Board Chairman Arnold Schilder, for one, recommends more pertinent information for decision-making in today’s global business environment with increasingly complex financial reporting requirements. “The global financial crisis also has spurred users, in particular institutional investors and financial analysts, to want to know more about individual audits and to gain further insights into the audited entity and its financial statements. And while the auditor’s opinion is valued, many perceive that the auditor’s report could be more informative. Change, therefore, is essential.”
However, as Jones also notes in the FT report, there are concerns that auditors could usurp some of the authority of management to report issues to stockholders. Stayed tuned.
(Photo: Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook.)