The shifting sands of auditing should send signal to boards

You might recall back in mid-2015 we chatted about the Australian Securities and Investments Commission – or ASIC – and its push to make it easier to prosecute company executives and directors for overseeing poor business culture that leads to very poor business performance.

We spoke then of it representing a seismic shift on the governance landscape and it’s good to learn that the rumblings continue, this time in the corridors of some of the world’s most prestigious accounting firms.

Just recently, KPMG announced that it has broken with a century-long tradition of hiring only accounting and economics graduates for its auditing section by taking on 42 graduates in this area who boast none of these qualifications. Rather, they come with what are termed “soft skills” – in areas such as mathematics, IT, social science…and even counter terrorism.

What’s more, KPMG anticipates that one-third of its almost 400 audit graduate intake this year will have no accounting background.

And it’s all because of the shifting sands of what was traditionally the auditing environment. The anticipated new corporate reporting rules will demand that the modern external auditor of today and tomorrow is no longer required to audit only accounts, look at revenue and expenses and carry out random spot checks on internal controls and financial systems before signing off on a company’s accounts.

It’s poised to be an altogether more sophisticated undertaking, where, with so much these days being done by IT systems, data analytics will become increasingly central to the audit process.

So KPMG has moved to bring diversity to its auditing division by complementing its traditional auditors with those who can think beyond the numbers. And I understand that another of the big players, PricewaterhouseCoopers, is carrying out a lot of extra training on technology skills, for precisely the same reason.

It seems clear that the auditor of the future will be a very different animal from that of even five years ago and will be required to also look into the corporate culture on the grounds that bad culture often leads to bad conduct and equally bad outcomes.

This will allow them to appreciate how culture influences conduct and best of all, will place them in a position – and hopefully early in the piece – where they can flag cultural issues that could lead to corporate collapse and advise and assist accordingly.

This is good news for all of us out there who might have an interest in or be shareholders of publicly listed companies and a wake-up call for any recalcitrant boards and executives out there.

For surely if the big accounting firms are increasingly seeking a mix of accounting and economics graduates and those with lateral, innovative and social skills, that should tell us where the corporate world is heading?

And that’s where forward-thinking boards should already be – or at least be heading.

Until next time,

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