Audit: In death spiral or bottom of the curve?

The continuous changes in audit process may signal a decline in the audit to many. Or is this a wonderful opportunity for audit professionals to band together, share best practices, and boost the profession and audit quality?

There has been a lot of press in the United Kingdom resulting from its recently increased exemption threshold for audits of financial statements. It’s raised questions such as: “How will this affect the audit market?” and “Will audit firms move out of audit altogether?”

These are good questions that many commentators have been asking in Canada over the years. So, is the audit destined to go the way of the dodo bird?

My sense is that the audit market is contracting here, too, in Canada. Often I hear practitioners say things like:

  • “My clients don’t understand the value of an audit so they don’t want it.”
  • “The complexity of audit standards is driving the price of an audit through the roof.”
  • “It is not worth it for me to maintain an audit practice when I only do a few audits.”
  • “Audits are too risky.”

Sounds hopeless. Can we turn things around and, if so, how? Here are a few thoughts from my perspective.

  • Some practitioners have moved away from audits to focus on reviews, compilations and tax services to avoid liability. It is interesting to note that according to AICA Services, the practitioner insurer, these three services make up nearly 70 per cent of all practitioner liability claims (and nearly 50 per cent of claims expenses) in Canada. Audit claims are around 10 per cent of all claims (around 34 per cent of claims expenses). So in my mind it is an open question whether audit is as risky as some other services.
  • There are practitioners who have successful audit practices. They are passionate about auditing, do high quality audits, and their clients value their work. So it can be done.
  • To me, if auditing continues to be viewed as just a compliance exercise, it may be because the profession has not done a good enough job explaining its value. If auditors don’t know how to demonstrate the value of an audit then perhaps conversations with their clients focus more on cost versus benefit. We need to send a stronger message about the value of audit.

KEEP THE CONVERSATION GOING

Is the audit profession in a death spiral or can it be re-energized? Share your views and let’s see if we can gain some momentum.

I would like to hear from both sides of the fence.

  • Those who have thriving audit practices:
    • What are your critical success factors?
    • What advice would you give to new entrants to the CPA program?
    • How can an existing practice reposition itself for success?
  • Those who have moved away from audit services:
    • What were the factors that resulted in this decision?
    • If you had to do it again, what would you do differently?
  • If you’re someone entering the profession, what influenced your decision to go into audit versus industry?

I believe that sharing these learnings will help boost our profession, and bolster audit quality in the process.

Post a comment below or email me directly.

CPA Canada’s Audit Quality Blog is designed to create an exchange of ideas on developments and issues in global audit quality, as well as their impact in Canada.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada