Q. It’s being said that the quality of the audit process has not changed recently, despite the fallout from the financial crisis. What are your views on this?
We are adopting a more stringent audit approach as we are moving towards a more standardized approach in which some things are being done automatically using data analytics, and others are being done by professionals or semi-professionals in remote destinations. Many tasks are being done differently because we have found that certain audit procedures reveal no audit findings while others reveal much more. This change and investment is improving audit quality significantly.
Q. How can audit quality be ensured in an environment where delivery costs are rising but prices falling?
We tend to see a conflict between quality and cost. The reverse is true and this is something that can’t be overemphasized. In many cases where we have standardized, modularized and offshored procedures we are obtaining a much higher quality. Using these processes, we are on track to manage our costs effectively in Germany. If you go further down the road, to data analytics and looking at patterns from big data, I can see a quantum leap in terms of cost and what we provide, through benchmarking and much deeper insights into how a company functions. That will not only save costs but provide more value and increase the relevance of the audit.
Q. What would auditors do differently if unconstrained by regulation and able to deliver solely what the capital markets want?
Currently we say yes or no in our audit opinion. We could express our opinion on many more things if the liability regime and regulation were different. It would be good for the capital market to have an additional statement on the robustness of the model and the risks and opportunities associated with the business model. Maybe, like a rating agency, we could give a grading on the company itself. These things would help audit become more relevant again and enable audit to be the institution that people trust, because of auditors’ independence and professionalism.
Q. Of all the parties that have an interest in an audit, which do you think feels most short-changed by the value it provides, and why? Are their concerns justified, and how can they be addressed?
Because of confidentiality rules, we cannot provide wider stakeholders with information other than the audit opinion, so they may feel short-changed. The IAASB is currently discussing whether we could say more in our opinion. This is not easy. If we were to include more judgmental matters in the audit opinion, there would be a natural conflict with clients who might not want us to express certain things. Will we then be better off or will our statements be watered down to nothing? This will depend on how strong the profession is, and how tough the regulators are on us and on the companies as well. But we are in the sensitive position here and it’s not a good place to be!
Ingmar is the Head of Audit in Germany. He joined KPMG in 1995 and was elected to the KPMG partnership in 2002. Until September 2010, he was leading the National Private Equity Audit Team. In this role he advised and audited private equity funds and their portfolio. He was additionally leading the Global Assurance Initiative within Audit Germany before becoming Head of Audit in 2011.