Spotlight on Audit & Assurance
An interview with Stephen Griggs, Managing Partner, Deloitte UK
What’s the market for audit been like this year?
Audit & Assurance has performed strongly this year and this is reflected in our success in the market. For example we were selected as auditors by Ineos, the UK’s largest private company, as well Lloyds Banking Group, the iconic financial institution.
Our business continues to grow as the scope of what companies expect from an audit product expands to cover, for instance, assurance from front office to back including controls and responding to disruptive events, regulatory and market compliance and access to capital markets.
However, as you’d expect, COVID-19 has been hugely significant for us and the businesses we work with. In the space of a few days, our entire UK Audit & Assurance practice had to adjust to operating remotely.
We have continued our focus on quality throughout the pandemic. The economic impact and the increased operational risk of working remotely place a greater onus on companies to make sure their controls and processes are robust. We had to delay a number of audit opinions until we were fully satisfied we had gathered sufficient evidence to support sign-off.
As companies and auditors look to inform and assure, clear disclosures about all key judgements and estimates have been – and still are – vital, in order to ensure there is a full view of a company’s financial health in these uncertain times.
We are working hard as a firm to ensure we continue to improve our audit processes, technologies and controls. By doing this, we can continue supporting companies through the pandemic and beyond.
This year also saw the conclusion of the Financial Reporting Council (FRC) Tribunal into the financial reporting of Autonomy, with the firm and two former partners sanctioned. We regret that the FRC Tribunal ruled that aspects of our audit work on Autonomy between 2009 and 2011 fell below professional standards required.
Our audit practices and processes have evolved significantly since this work was performed over a decade ago and we continue to transform our audit by investing in firm-wide controls, technology and processes. We remain committed to playing our role in delivering change that embraces audit quality, improves choice and restores trust in the profession.
What are your expectations for the year ahead?
I’m truly hoping it will be defined by meaningful audit reform.
The debate around the purpose and role of auditors in association with business failures and fraud, alongside the ongoing perception that auditors’ independence is clouded by conflicts of interest, has continued. Whether you agree or disagree with those headlines, it’s clear that change is needed and now is the time to make it.
We’ve been consistent in our support for reform and believe the widespread disruption caused by COVID-19 has only exacerbated the urgency for it. While the pandemic has unsurprisingly slowed the pace of legislative and regulatory change, we still expect this to ramp up.
We also recognise the need to be more transparent about our audit business. By establishing our independent Audit Governance Board (AGB), with Baroness Ford as independent chair and with a majority of independent non-executive directors, we have become the first of the large audit firms to announce some of our plans around how we will implement the operational separation principles set out by the FRC in July 2020. Effective from 1 January 2020, the AGB will have responsibility for providing independent oversight of our UK audit practice, with a focus on the policies and procedures for improving audit quality and ensuring the FRC’s objectives and desired outcomes are met.
While governance changes to audit businesses are essential, they must be considered alongside a wider package of improvements covering corporate reporting, the role of directors, the evolution of the audit product and the regulatory environment in which we operate. Sweeping reform is needed if we are to better meet society’s expectations of our profession.
What’s the biggest opportunity?
Audit reform provides a significant opportunity for all market participants in the system, including audited entities themselves. After all, it’s pretty clear from the ongoing debate that the current audit product is not meeting the needs of all its stakeholders, and corporate reporting needs to go further.
Access to reliable, timely, transparent and meaningful data and insights to inform this reporting is more important than ever. This will allow stakeholders – investors, employees, suppliers, government and regulators – to identify well-governed companies and their ability to mitigate disruption. Echoing the sentiments of Sir Donald Brydon, we believe audit should inform as well as assure and its scope should be extended to areas of broader public interest, not solely historic financial statements.
It’s absolutely right that society should have confidence in the completeness and accuracy of corporate reporting. We recognise that, as auditors, we have a critical role to play in ensuring that happens.
Reform will also help us attract a new generation of auditors to our profession. During the year ended 31 May 2020, we recruited 539 people into our Audit & Assurance graduate and school leaver programmes and I’d like to continue to see talented individuals consider this career path in the future.
What are you most worried about?
Undoubtedly the pace of reform around the audit debate. We acknowledge that change is needed urgently and this requires everyone in the market to step up. Many areas do not need to wait for regulatory or legislative prompting – which could take several more years – and if the dial doesn’t shift, a tremendous opportunity will be missed.
We take our role of serving in the public interest very seriously. The COVID-19 pandemic has brought companies, regulators and auditors together to navigate corporate reporting in an increasingly challenging environment. It’s a landscape where future viability is often unclear, where there is a heightened risk of fraud and where businesses must demonstrate their impact on society like never before.
We must use this momentum to drive longer-term change, creating an audit product of the future that is valued by all stakeholders.
How have you managed through lockdown?
This has been a very challenging period for us all. I have to say how immensely proud I am of how our auditors have responded during lockdown. It has been a difficult period and many people have been juggling multiple caring responsibilities at home or have felt isolated from loved ones and colleagues. The wellbeing situation has been unique for each individual. Personally, I can’t wait to get back into the office and see everyone again!
Our people have also shown huge dedication in ensuring audit quality is maintained and that relevant financial information is delivered to the capital markets. As we look forward the challenge will be how we move to a new way of working – this is an opportunity to embrace some of the positives over recent months.
You can read more about our audit business in our Transparency Report.
Note: Stephen Griggs was previously Managing Partner for Audit & Assurance at Deloitte, and was appointed as UK Managing Partner of the firm in September 2020.