Let’s take another look at the report published by the University of Sheffield’s Audit Reform Lab, titled Reward for failure: The paradox of audit partners’ record payouts amidst poor audit quality.

These are some of its recommendations:

• We recommend legal separation of audit and non-audit services as the start point for any future reform. The client-pays model also creates too many conflicts of interest and needs reform. Although these recommendations are likely to receive opposition from the audit industry they are, in our view, necessary pre-conditions for change and have been discussed in government reports as well as external advocates for reform. Other measures that would also go some way to improving the culture of audit include:
• A keener focus on nurturing the principles of professional skepticism, independent judgement and prudence within the professional bodies who represent auditors. Audit culture should be closer to that in the medical profession where a commitment to upholding a professional ethos to serve the public trumps financial considerations.
• New auditor-specific qualifications, skills, and training in the area of forensic accounting and fraud awareness which deals with real-world examples of creative accounting and gaming; but also real world ‘soft skills’ such as the ability challenge and push back on powerful CEOs and CFOs who draw up optimistic financial statements.
• Greater co-ordination between the professional body and universities to create accredited educational pathways that embed these different norms and skills to provide for a more distinctive professional culture of audit

The report doesn’t specifically suggest how the client-pays model should be reformed or replaced (some have suggested, for example, that auditors should be directly engaged and remunerated by insurance providers). But regardless, the recommendations flow in part from a broader diagnosis that “the mission of audit is confused – it is too focused on whether arcane and loophole-laden accounting rules are being followed, whilst ignoring whether the outputs of those rules amount to a true and fair representation of corporations’ economic position. This is allied to a box-ticking approach which works against principles of professional judgement and the necessary scepticism needed to enforce prudence. Auditing, to a greater or lesser extent, has become a form of administration which diminishes the professional status of auditors.”

Coincidentally or not, at around the same time as I became aware of that damning verdict I happened across a Bloomberg news piece titled Accountant Shortage Spurs Call for Alternate CPA Path, Pay Bump. Here’s an extract from that:

• Strict education requirements and stagnant pay deter aspiring accountants from joining the profession and staying in it. An industry proposal calls for big changes to fix these problems.
• The proposal, released Tuesday, is the work of a group that a top accounting industry association convened last year to tackle the shortage of Certified Public Accountants, or CPAs.
• Would-be CPAs should be allowed to earn equivalent college credit on the job, either through programs administered by colleges and universities or by a qualified employer, according to the group’s draft recommendations. Audit firms also need to step up pay for entry-level accountants and improve work-life balance, the group said.
• “They have to change their business model and culture—that’s just a fact,” said Lexy Kessler, partner at accounting firm Aprio LLP and chair of the group. Its members include representatives from accounting firms, state CPA societies, and academia. “The most successful firms going forward will be the ones that make the change.”

Without getting into the details, and while noting that the recommendations are specific to the US and its particular requirements, it seems reasonable to posit that any solution to the “audit quality” problem must also address the recruitment issue, or at least not be entirely misaligned with it. Both the Audit Reform Lab and the new US initiative focus on the deficiencies of the current education and qualification model, although it seems important to me to emphasize that allowing a greater diversity and flexibility of routes to becoming an accountant shouldn’t be read as making it “easier,” because the elements of accounting and financial reporting aren’t actually becoming easier. And there seems to be a potential tension between the Reform Lab’s list of necessary measures, which at the very least don’t sound like less work for audit professionals, and the above-mentioned desire for greater work-life balance. Part of the answer must surely lie, as also indicated by the Lab, in pulling back on what they call the more arcane or box-ticking aspects of audit, but if that’s the case, then we have to suppress our collective outrage (whether real or professed) when auditors and firms are caught out on minor matters. As I said before, I envisage audit continuing to be a primarily human discipline rather than an AI-driven one, and yet that depends on valuing and elevating and rewarding the aspects that are necessarily or at least preferentially human…

The opinions expressed are solely those of the author.