"If audits did not already exist, we would certainly need to invent them. Management, shareholders, banks and capital market participants would want them. But would we invent the audit product in its current form? I doubt it. … The output would change, and as a result so would the process."
Sai Choy Tham, Chairman, KPMG in ASPAC Region, Managing Partner, KPMG in Singapore
When we started thinking about the future of audit, we wanted to find out where we are now: whether lead partners from KPMG member firms in different regions thought there was value in audit today, and if so, what this value is. But more importantly, we wanted their ideas on audit's current weaknesses and on how we, as a profession, can address these to make the audit more relevant to twenty-first century business.
The comments made in the following pages by partners from across KPMG's network of member firms are their own and made in the context of their role as experienced auditors. Though the partners' responses were clearly defined by their personal ideas and experience, a number of common messages emerged.
All felt that audit still has relevance and value. This value mainly derives from confirmation over historic financial information, as shown by the resulting reduction in the cost of capital. They also affirmed that audit quality has been improving since the Enron collapse. The financial crisis has put renewed focus to push these improvements along, but it is basically furthering an agenda that was already well underway.
The value of an audit, however, highlights its major limitation: it only deals with historical financial data. Although an audit reduces the cost of capital, it has less – some would say declining – relevance to capital markets. Investors are more concerned with what drives share price and organizational value than with annual reports.
For audit to stay relevant, we need to start looking at what creates value in a business. More integrated thinking so that companies consider how they report more holistically will help. But we need to get involved in understanding entities' real business value drivers so that we can give assurance over these drivers, as this is where we personally believe market demand is going to take us.
This leads to the final point: innovation. Until recently there has been little impetus for the audit profession to develop. But all those interviewed for this project are adamant that innovation around inputs and outputs is absolutely critical in order for the audit to stay relevant. Regardless of legal and liability implications, the profession needs to get moving on creating a new reporting and assurance model that works for tomorrow's business world.
The profession as a whole is furthering this public policy debate, and KPMG intends to be a leading voice in this discussion. We are serious about change and about having an open dialogue to see how that change can happen in the best possible way. We invite all stakeholders in the capital markets to join us in the discussion. Read what partners from across the KPMG network of member firms have to say on the following pages.
Global Head of IFRS,
Global Head of Audit,