The skillset of auditors needs to develop to prevent an audit skills gap, if not the audit profession is in risk of becoming less relevant, according to a report by ICAS and the Financial Reporting Council (FRC)
In the research report, Auditor Skills In A Changing Business World, ICAS and the FRC call for action from firms, professional bodies, regulators and standard settors and investors to develop the skills of audit teams to deliver high quality audit in the future.
The report says: ‘There is a risk that the audit profession could fail to attract and retain the best talent and be unable to deliver the requisite skills and meet the demands of complex company audit.’
The report found auditors lacked the following skills:
- Advanced business acumen skills;
- Technology and data interrogation skills; and
- Soft skills
Business acumen
If an auditor does not understand a business, then they cannot audit or challenge it effectively because they will not have the knowledge to assess any information.
The report states: ‘The auditing standards require the auditor of an entity to have an adequate understanding of that entity’s business, and its industry. In order to have that adequate understanding, there needs to be much more emphasis within the audit firms on ensuring that members of audit teams better understand the businesses they audit and the drivers of value within their industries.’
Financial statements have becoming increasingly more complicated therefore auditors are needed to help businesses understand the information. They need to be able to state to stakeholders the technical issues, business implications and key risks that might impact financial statements.
The report calls for auditors to acquire this skill set at trainee and early career stages.
Technology and data interrogation
The report asks whether the firms currently have enough skills and technology to audit big data in the most efficient and effective way.
The report says: ‘Data analytics enable audit teams to interrogate entire populations of data, rather than relying on results of sampling a small part of the data available. This resource should enable companies and their auditors to identify inconsistencies in business activity.’
However, data analytics requires a key set of skills to identify the objective of the analysis, to apply the technology to capture the data and to organise the data in a way so that the results of the analysis can be interpreted.
Soft skills
The report identifies soft skills as ‘the ability to apply professional judgment and exercise professional scepticism’.
This is a skill that takes time and requires mentoring in order to be developed. The report believes that greater emphasis should be given to the development of the psychological and behavioural skills that are key to auditing, by providing training in how to evaluate corporate culture, behaviours and bias it would help develop professional judgment.
Barriers
The report also highlights that there are a few barriers that need to be tackled. Firms should review how they recruit, develop and retain individuals to provide the skills that the profession requires. There is also a need to consider how such specialists should be trained and/or qualified in audit to make them more effective members of the audit team.
Another barrier is the extent to which regulation could stop the development of judgment and also the lack of attractiveness of a career in audit.
Anton Colella, ICAS chief executive, said: ‘Audit quality relies on quality people. The challenge is that audit needs to attract and retain the most talented individuals, now and in the future. We need to take every opportunity to reposition audit for the next generation by demonstrating the role which audit plays in society and improve the perception of the value of a career in audit.’
Melanie McLaren, FRC executive director, audit, said: ‘The FRC has repeatedly stressed the importance of high quality audit to underpin confidence in the capital market. To maintain this the UK needs a sustainable and thriving audit profession.’
A joint ICAS/FRC discussion event will take place in London on 23 November to discuss these issues.
The report, Auditor Skills In A Changing Business World, is available here.
