THERE has been a growing mistrust in institutions of all kinds since the great financial crisis exposed illegal and unethical behaviour across the financial sector. The public, and in particular the media, have focused on issues that include unethical tax planning, "rewards for failure" and market manipulation.
In particular, the crisis triggered a bout of soul-searching in the audit profession, which has been criticised in some quarters for failing to spot the danger signs that led to the crisis.
As a result, some key questions were raised about the quality of auditing, its effectiveness, the role of professional scepticism and judgment, and, more fundamentally, about the relevance of audit.
But rather than losing its relevance, an auditor's independent view of a company's financial information is even more crucial today, given the increasing complexity and judgment involved in financial reporting, industry players and experts said.
Yeoh Oon Jin, the executive chairman of PwC Singapore, said: "We need to ensure our audits continue to meet the challenges of increasingly complex accounting standards, evolving stakeholder expectations, regulatory input and the highly competitive marketplace in which we operate. The accounting profession plays an important role in promoting the reliability of financial information through the performance of high-quality audits."
He noted that in today's corporate world, accurate and reliable financial information is essential to investor confidence and the effective functioning of the capital markets.
Agreeing was Arnold Schilder, the chairman of the International Auditing and Assurance Standards Board, who argued that audit serves an important public interest. "It strengthens the quality and credibility of financial reporting and public confidence therein. Audit is a critical part of the financial reporting supply chain and society's financial infrastructure. Failures to deliver high-quality audits can result in adverse consequences."
Kenneth Yap, the chief executive of the Accounting and Corporate Regulatory Authority (ACRA), said that in Singapore, the quality of audit is fundamentally sound, but that the financial crisis is a useful reminder of the need to be vigilant and to continually review and strengthen audit quality as a key pillar of market trust.
"Perceptions are changing and expectations are rising among the public, including audit committees and investors, which has since displayed a stronger interest in audit quality. The audit profession has been stepping up its response to maintain public confidence in audit quality," he said.
ACRA's reviews of the quality controls of audit firms have seen clear and marked improvements over the past few years. "This is crucial in boosting the market's perception of the value and quality of audits of financial statements."
To rebuild confidence in the profession, there needs to be more conversations on issues of trust and reporting among multiple stakeholder groups, and to understand what more is needed in order for trust to flourish, said Mr Yeoh.
"By understanding the dynamics of trust more fully, we can lay down the foundations to successfully reshape and improve corporate reporting in order to rebuild trust, and provide a more robust basis for guiding our clients through its complexities," he said.
Acquiring new skills
The challenge now is for the audit profession to move beyond compliance assurance and demonstrate that auditors add strategic value, said Lee Fook Chiew, the chief executive officer of the Institute of Singapore Chartered Accountants (ISCA).
"Currently, audit opinion is given on past financial information. There is a need to move towards a continuous audit process which provides assurance on information on a real-time basis," he said.
He noted that the skills of practitioners need to be enhanced by using powerful new tools such as statistical and analytical methods that would more successfully identify so-called "red-flags" of possible fraud.
"This would increase investor confidence by lowering accounting risk, thereby lowering cost of capital and spurring economic expansion - a rising tide that would indeed 'lift all boats' over time," he added.
The broadening role of the auditor means that attracting top talent to the profession is another challenge. To overcome this, Mr Yeoh said that PwC has rolled out several initiatives to attract the best talent, to enhance productivity and to consider non-accounting graduates as an important source of fresh talent.
Audit firms must evolve in a way that ensures that their public interest role remains at the heart of their practice, with sufficient resources and focus dedicated towards it.
An evolving role
Mr Yap said: "A high-quality audit of financial statements is a very clear and necessary role and will remain crucial. On the other hand, auditors do gain tremendous insight into the companies they audit, and have the expertise to provide a wider service to non-audit clients."
Auditors could potentially be called on to provide assurance to integrated reports, an emerging form of financial reporting that aims to give a fuller picture of a company's health beyond its financial performance.
Indeed, Mr Lee said that for audit to continue to remain relevant and play a key role in the value creation process, it was essential that the profession expand its role.
"Auditors need to focus not just on results but also on risks and forward-looking statements. They have to look at not just numbers but also narratives, providing assurance not only once a year but continuously," he said.
"Consequently, the audit profession will be able to deliver more value and communicate more effectively to stakeholders. The evolving changes would mean a stronger audit process, and a better output."