PwC paper calls for ‘New Future of Audit’

The firm has gathered hundreds of points of view over the past eight months through roundtable events, meetings with senior business leaders, investors and other interested parties, an online forum, and a survey of business leaders and investors to capture their ideas about the future of audit.

The paper shares the big themes and ideas to come out of the forums and outlines opportunities for the audit, corporate reporting and the regulatory environment to develop to address the concerns and needs of stakeholders.

Key findings from the investor and business leader survey include:

• Both the investment community (68 per cent) and business leaders (80 per cent) think today’s statutory audit serves the needs of companies, while 41 per cent of the investment community and 68 per cent of the businesses surveyed feel that the audit meets the needs of investors.
• 32 per cent of investors and 52 per cent of businesses believe audit is effective at meeting the needs of wider stakeholders, such as employees, customers and suppliers.
• There is a broad consensus on the desire for more insight and clarity in the audit on the future risks a company faces. Some 72 per cent of investors and 79 per cent businesses are in favour of more information about a company’s future prospects and risks in the central scope of a statutory audit. The position is less clear cut on issues such as forecasted performance metrics and corporate culture, ethics and behaviour.
• The majority of both groups surveyed don’t feel that going concern needs to be extended beyond 12 months. Where those surveyed felt it should be extended the preference is for two years from the business community and three years from investors.
• 76 per cent of investors and 84 per cent of business leaders believe the use of technology such as AI, automation, data analytics would increase the efficiency with which the audit is performed. While there is a consensus that technology will increase the level of scrutiny and overall quality of audits, only 37 per cent of businesses and 36 per cent of investors think technology will enable auditors to better understand a business.
• There is also broad backing for strengthening the quality of reporting by bringing a company’s internal controls within the scope of the audit and strong appetite amongst investors (64 per cent) and businesses (82 per cent) - large and small, listed and family-owned - for the scope of the audit to be flexible and tailored to the type of company being audited.

Hemione Hudson, head of audit at PwC UK, said: “We aimed to broaden the debate and have listened to a wide range of voices engaged with corporate reporting. The findings suggest that the audit could go further to address the needs of the business community and investors. This underlines the need for the audit to evolve to meet the expectations of stakeholders, and to help rebuild trust in businesses and the capital markets. Auditing has made a significant contribution to the UK’s economic health over many decades and we want it to continue to contribute to driving growth, trade and prosperity.

“At PwC, we are working hard to ensure that the quality of our own audits continues to improve, and have put in place a substantial programme of measures to support this. But it is clear that improving quality alone will not restore trust in the audit. The audit needs to evolve and a more fundamental review of the entire corporate reporting system is required to ensure stakeholders can have confidence in the information they need for decision making.”

‘The Future of Audit: Perspectives on how the audit could evolve’ is available to download at www.pwc.co.uk/futureofaudit.