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The role of CPD in cleaning up audit

27 September 2022


The auditing profession is no stranger to controversy and, indeed, overhaul. And while lessons were undoubtedly learned after the Enron and WorldCom scandals of the early noughties – resulting in legislation in the form of the Sarbanes-Oxley Act – the pressure on auditors has remained relentless and the scrutiny they are under is as piercing as ever.

Notes from a scandal

Auditing scandals and their fallout have, unfortunately, continued. It has been four years since the construction and facilities management company Carillion, according to public records, collapsed with debts of more than £7bn. This scandal along with other high profile failures, raised questions over the purpose of audit and the role of the auditor, with any headway made at the turn of the century appearing long forgotten.

Over the past 12 months alone the Financial Reporting Council (FRC) has issued a record £46.5m in fines to Britain’s top accounting firms. The upshot of continued failures and continued scrutiny meant that the question has never gone away.

Government reform

Following recommendations of independent reviews by Sir John Kingman, Sir Donald Brydon, and the Competition and Markets Authority, the UK government’s case for reform aims to lay the foundations for a stronger, healthier audit market. The plans include greater accountability for big business, addressing the dominance of the Big Four audit firms and replacing the FRC with a new, stronger regulator – the Audit, Reporting and Governance Authority (ARGA).

The Government’s response to the consultation on its audit reform white paper says that the ARGA will hold responsibility for driving improvements in audit quality, which will include taking on responsibility for registering auditors of Public Interest Entities (PIEs – broadly, private companies with more than 750 employees and annual turnover of more than £750m). The response adds, though, that ‘the Government supports the Brydon Review’s long-term vision of expanding the future scope and purpose of audit to make it more informative’, including ‘development of the market for assuring financial and non-financial information beyond that in the financial statements’.

This represents a significant expansion in the role of auditors, and the Government says it will ask professional bodies to ‘improve auditor qualifications, skills and training in order to help create a more effective and distinctive audit profession.’

Auditor competency and evolving skills

What this means, in essence, is that if the new audit reforms are to be a success, the granular issue of the competency, both in terms of training and continuing development, of every single auditor at every single accountancy firm will be as important as the more sweeping changes to the profession as a whole.

Auditing is a methodical, complex job that requires incredibly close attention in detail (arguably clients often don’t operate with the same rigour). As well as both the developing technical and soft skills that auditors must have, they, along with the rest of us, face a rapidly evolving working landscape.

For example, audit firms are likely to move to a more flexible working model based on the needs of the individual, audit firm and audited company. As businesses become more complex, audit firms will need to access a wide range of knowledge resources as part of their multidisciplinary model. Technological innovation – from drones to machine learning – are already changing the way that audits are conducted. Audit teams are inevitably becoming more diverse in their skills set, combining technical and business knowledge with essential communication skills – and the latest reforms are adding further demands, in the form of assurance of non-financial information.

The challenge for auditors and their professional bodies is to ensure that their skills meet these changing demands – and continue to remain relevant as business and the audit profession evolves in the future. Recent research has looked closely at the skills required of auditors today, and the skills they will need to strengthen and develop in the future.

In KPMG’s Audit 2025: The Future is Now report, the top three skills that clients look for in their auditors are in the areas of technology, communication, and critical thinking, followed by technical excellence.

ACCA research found that in response to new and emerging laws, standards, technologies and stakeholder expectations, audit professionals are planning to hone their technical knowledge, expand their understanding of emerging technologies and their application in audit, and enhance their interpersonal skills – while maintaining high standards of ethics, independence and scepticism.

Taken as a whole, the research found that technology is the catalyst that will shift the focus of the audit process from a retrospective view to one which is prospective. Data analytics was found to be the most mature of the technologies used by most audit firms, while machine learning is still not at the stage where it is embedded in everyday audit practice.

The role of CPD

It will be up to accountancy bodies and training professionals to make sure that new skills and key skills are covered by CPD training.

The responsibility for completing Continuing Professional Development lies ultimately with each accountant as set by their UK professional body requirements. CPD requirements for accountants are typically around 20 – 30 hours of learning every year. The ACCA, for example, generally requires 40 units of CPD a year, including 21 hours of verifiable CPD.

What is critical, though, is ensuring that CPD requirements are robust enough, and that is something of a moot point. That is partly because, while there is an expectation that CPD is completed, it remains a tick box exercise as none of the skills or knowledge gained are assessed/tested as being fit for purpose or indeed impactful.

The main bodies are already reviewing their CPD programmes. The ICAEW, for example, has launched a ‘Rethinking CPD’ project. Sharron Gunn, ICAEW’s Chief Operating Officer, says: ‘When ICAEW’s current CPD programme was introduced back in 2005, it’s fair to say that the move to an outputs-based model was progressive. However, almost 20 years on, times have changed and our CPD policy must be adapted to reflect the increasingly complex world in which our members operate.’

Duncan Wiggetts, Chief Officer, Professional Standards at ICAEW agrees that a large part of this includes widening the net of skills that auditors must have to ensure audit success. He goes beyond even the soft skills, the communications skills and the digital skills that are now required. It is clear, he says, that many recent issues in the profession have hinged not just on a lack of technical understanding, but have also arisen due to ethical conflicts of interest and behavioural issues.

The change includes an annual mandatory ethics CPD requirement for all members, additional risk-based CPD requirements based on the risk profile of a member’s area of work, and a minimum number of verifiable CPD hours for each of three risk categories (the highest level of risk requires a minimum of 40 hours of CPD, of which 30 hours must be relevant and verifiable).

There are, however, worrying signs of a lack of commitment, or perhaps a lack of understanding of the vital importance of CPD in the current environment. According to research from the Institute of Financial Accountants (IFA) in 2019, a large number of accountants – approaching 10% – are failing to complete enough relevant CPD units each year, with many professionals instead opting for non-verifiable CPD training and development. This will no longer cut the mustard. Auditors themselves must embrace CPD and providers must ensure that CPD is covering the raft of new skills needed to restore trust in the profession.

As well as the commitment of individual accountants, it will also, of course, be essential to make sure that CPD requirements are properly adhered to, and that they are achieving what they are meant to achieve.

Verifiable CPD hours must be evidenced - the ACCA states, for example, that any learning activity can count as verifiable CPD if the member can answer yes to three questions:

  • Was the learning activity relevant to your career?
  • Can you explain how you applied the learning in the workplace?
  • Can you provide evidence that you undertook the learning activity?

The critical question for trainers, accountants and the profession, is how to ensure that CPD is robustly assessed – including verifying that the training has been effective in the workplace. In order for CPD to be verifiable it's essential that it is independently regulated, assesses specific skills and knowledge and tests aptitudes to a suitable level. Only then will CPD be robust enough to provide assurance that personal development is both fit for purpose and properly regulated.

As the audit continues to evolve and regulators move to strengthen the audit process and rebuild trust in the profession, the wide-ranging skills of auditors will be key. Keeping skills relevant and robust through CPD has never been more crucial – to the career of an auditor, to the integrity of the profession, and to the health of the business world - so why should it not be subject to the same scrutiny, in terms of being robust, fit-for-purpose and impactful, as all the other qualifications that finance professionals are required to have?

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