What does PwC’s report mean for the future of audits?

PricewaterhouseCoopers released a report last month on the state of the audit industry, making recommendations for how the audit can evolve to meet the needs of businesses.

After an 8-month study, they found that just 32% of investors,and 52% of the business community, believe the audit is effective at meeting the needs of wider stakeholders, such as employees, customers and suppliers.

Consensus appears to sit around audits needing to look beyond financial statements, taking into account future growth prospects, and tailoring the framework of the audit to the size of the business.

PwC’s key findings from the report:

  • 72% of investors and 79% of 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 iwas for two years from the business community and three years from investors.
  • 76% of investors and 84% 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% of businesses and 36% 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%) and businesses (82%) – 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.

Accountancy firms have for some time been looking at ways to improve the quality of audits, so should find solace in the fact this report has come out. Meanwhile, the Government has been busy putting together plans for a radical overhaul of the audit market.

The eight-week consultation, described as an ‘initial consultation’, is seeking views on the four core Competition & Markets Authority (CMA) proposals, including strengthening the audit regulator, extending the powers of audit committees, the viability of mandatory joint audit and peer review, measures to mitigate the potential collapse of a Big Four firm, and a possible structural break-up of the Big Four firms – PwC, Deloitte, EY and KPMG.

The consultation, led by the Department for Business, Energy and Industrial Strategy (BEIS), has been issued over the summer period, and this is usually followed by a three-month review period before any concrete proposals are set out by the government. So we’ll wait and see…

Read PwC’s full report here

Read the Government’s market study on statutory audit services.