Future of audit – “the paradoxically world of audit”
Only a few moments after publishing an article with our view on some elementary developments on the future of audit, the Dutch Authority for the Financial Markets (AFM) presented a report on a research amongst the big four audit firms. Based on the research, in which they inquired almost 1.200 assistants, managers and partners, they reported that they expect that “quality of statutory audits is guaranteed in 2020”.
Although this might sound positive, a few weeks after this report, a new report was published by the AFM on trends at non-PIE auditors, in which they express their concern on the observed decrease of, among other things, engagement quality control reviews.
Taken into consideration that “implementing changes to improve the quality of audits in a sustainable manner is going too slowly.” (AFM, 2017), the various statements seem to be paradoxical. Some of them include a recognition of highly quality driven culture in the audit industry, while others are expressing concerns.
The more we look at the audit profession, the more paradoxical examples come to mind. Think about the joint audit model for a second, and the international approach to this model. The Competition and Markets Authority (CMA) in the United Kingdom explicitly mentions the joint audit model as a solution for quality issues in the audit profession. Although it could be a part of the conclusions of Commission on the Future of Accountancy (CTA) in The Netherlands, currently the joint audit model is not enforced here. However, France is already familiar with the joint audit model.
In a joint audit model a company assigns two audit firms to work closely together and together they sign off the auditor’s report. But doesn’t it sound (a little) paradoxical that improvement of quality could be achieved by assigning two audit firms, while the initial purpose of an audit was already to serve the public interest to strengthen accountability and reinforce trust and confidence in financial reporting?
Audit only model
Another initiative (as to be discussed by the CTA) is the audit only model. In such a model audit services and other services need to be separated in the range of services provided by audit firms. But what is the impact of a measure like this, for example within a global network like Crowe or the Big4? Just now, with international business at the core of almost every organization, and the growing need of companies for international aligned networks for financial services, like audit, this measure could impact further globalization.
Cancelation of mandatory statutory audits
Maybe the less paradoxically, but the measure that could possibly have a strong effect on the audit market in The Netherlands, is the cancelation of mandatory statutory audits. Currently an audit is mandatory for medium and large entities. A company qualifies as a medium sized company if it meets two out of the following three criteria for two consecutive years:
Although most audits are already triggered by specific stakeholders that require assurance on financial reporting, the measure of canceling the mandatory statutory audits could still lead to a change in market conditions.
Future of audit
It is within expectations that the audit market will change. But what would it mean for your company, registered in The Netherlands? We at Crowe Peak inform our clients and we could inform you in depth on possible changes and the impact for you company. If you have any questions on the future of audit, please contact us.
 After incorporation of a company the first year defines the qualification of a company