Accountability of auditors are towards stakeholder and not management, reminds Baker Tilly CEO

Speaking to Daily FT, Ted Verkade, CEO and President of Baker Tilly International, opines that credibility remains a cause for concern for the global audit industry, and that there remains a lot of work to be done before they truly deserve the position of ‘gatekeepers to financial and management systems’. Verkade is in Colombo for an Asia-Pacific Regional Conference by a Baker Tilly International, with over 100 experts from 22 countries discussing the future course of the industry and business sustainability. 

The current pace of change in global markets and that of dynamics in people and policy present a myriad of challenges Verkade says. It has become extremely difficult to find and retain people, and this is a challenge for many industries especially with millennials entering the fray, as they don’t tend to stay in jobs for a very long time. For audit firms such as his, ensuring quality requires huge investments in time with greater focus on compliance, and this can even make the profession less attractive. In response, organisations have become more flexible with its workforce to tackle the issues he says; bringing in extra resources during a busy season or employ information technology and offshoring to share the load with countries or firms that possess the workforce to take them on. 

Whilst IT and artificial intelligence could take on some of the legwork of the audit trade, it still needs people at higher levels to interpret what is done. This can also lead to organisational issues, where what used to be a pyramid structure is now shaped more like a diamond, where companies have a much bigger middle level without a broad base at the bottom where they must ideally come from. In addition, many countries have mandated firm rotation for listed companies, which brings up issues such as fee pressures but at the same time open up new opportunities and clients. 

“Regulation is an issue as they are becoming tougher all over the world. The amount of time spent on regulations is increasing significantly, but that’s also about keeping the profession relevant and credible for the future. For example, Netherlands and many European countries have very tough regulatory regimes, but what you see is despite all these efforts there continues to be corruption and scandals despite being under the watch of audits. There is massive political turmoil about it, as to how these could still happen and what does audit firms do then. So, that becomes a credibility issue for the profession, and I think there is a long way to go. 

“There is a great future for the industry, but there is a lot of work to do be done before we as a profession deserve that position of gatekeepers to financial systems. Despite all the efforts by governments to get rid of corruption, it is almost impossible to eradicate and people are findings new ways of doing it. It actually looks like it is getting worse and I think that’s a big threat to doing international business and also for auditors. If we want to be the gatekeepers of financial system there is a role for us to play in fighting corruption and expose it if we come across it,” Verkade adds. 

Baker Tilly International is one of the world’s leading networks of 125 independently owned and managed accountancy and business advisory firms. With 147 locations across four geographic areas, the network shares experiences and expertise among 33,600 consultants to help privately held businesses and public interest entities meet challenges and proactively respond to opportunities. During its meeting in Colombo, the company will look to spawn new ideas for the profession and its business, plus, share updates and developments on their respective markets. 

IT and cybersecurity are big areas of focus as it serves as a common platform bringing the international teams together to create better services. Another key focus of the forum is ensuring consistency. Consistency to the company culture that is aligned to its vision, which then sets the conditions and platform for quality and work. Technology is receiving centre stage at Baker Tilly at present as it serves as a critical tool to stay current in the global marketplace which is constantly evolving and the company’s effort to stay ahead of changes. 

“I think we live in interesting times. At the moment the geopolitical situation is quite strange with the US becoming quite protectionist. There is still a lot of confidence and growth is generally good everywhere with technology being a huge catalyst particularly in Asia. If we can stay away from war, and assuming this protectionist thing is not going to happen, I think developments are more towards removing barriers and more global integration. The Asian markets are working hard to make doing international business easier. So, I am optimistic. But sometimes things happen, for instance no one foresaw the crisis in 2008. I think though the system is more robust now, there are still many countries with alarmingly high debt levels and their resilience is much less now. If something were to happen now there could be a disaster. At least the awareness is there, the system as a whole didn’t collapse in 2008, we have survived and there have been reforms, but there could still very well be another crisis still,” Verkade states.

The CEO and Managing Director is credited with taking Baker Tilly’s business international, and when queried on his experience and advice, Verkade stressed the importance of strategy. He reminds that what works in one market cannot be replicated in others, as they all have unique cultures and environments. “The important thing is not to be overambitious,” he says, because very often it is not going to work. He also points that Baker Tilly never starts a business in a country but chooses to partner with a local member firm which will complement its cultural fit and is aligned to his company’s work and ethical standards. In Sri Lanka, the company is represented as Baker Tilly Edirisinghe & Co. which was established in 1985, which is licensed to conduct statutory audits of banks and financial institutions including finance.

In conclusion, Verkade reminds us and auditors of their role as independent practitioners, and the changes taking place within the industry globally.

“There is a lot more emphasis on compliance of laws and regulations. There is an initiative with new standards which places much heavier responsibility on auditors. If you come across non-compliance what do you have to do, sometimes you even have to go to the authorities. I believe that’s a good thing. That puts the auditor in an independent position. Sometimes, you see firms are too close to clients or the management. You are in fact auditing management. Your real clients are the shareholder and all the other stakeholders. You have to always be very independent. You are not working with management, you are auditing them. That’s the shift in mindset that is taking place globally.”