This shift in the audit market represents both a challenge and an opportunity for the profession, raising a number of strategic as well as practical issues which we need to be addressed.  

Is there a future for audit?

My own view is yes.  People and organisations need high quality financial information that they can rely upon in order to make business decisions.

The audit provides an independent validation which helps underpin investor confidence maintaining stability in markets. Moreover you only need to look at what happens on those rare occasions where audits go wrong to see just how important a role they play. The impact is felt by everybody – auditors, investors, boards and management. 

At the same time I think we need to be realistic about the future landscape – I doubt very much whether we have seen the last statutory hike in the audit threshold. The profession will need to respond which could mean smaller firms that have historically focused in this area, either having to consolidate or leave the audit market altogether.

At the other end of the spectrum the drive towards commonly accepted international accounting standards (IASs) remains an important driver – to be able to compare company performance across different markets will bring huge dividends provided local difference can also be meaningfully captured. 

We also know from research we have undertaken amongst UK and US fund managers that the audit continues to play a key role in investment decisions.

What I think we are seeing is a one way ratchet where the absolute number of audits will shrink over time while the premium attached to an audit will increase in parallel with this trend.

At our recent Council Conference these issues were debated at length and we are now implementing a number of work streams intended to help the profession respond to the challenges ahead.  For example, at the smaller end of the market the assurance product we have been developing - an alternative to the statutory audit for those companies who fall below the threshold but still want meaningful verification of their numbers - has real potential. 

It should also provide those firms considering whether to remain in audit with a viable alternate means of income. 

The challenge for the Institute is to help members navigate through the changing landscape while ensuring that the role of an audit continues to be regarded as pivotal across the listed company sector as well as larger private companies. Are the scenarios above, ones that members recognise?

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