Accounting firms are essential to businesses and not-for-profit organisations, particularly when managing one or more components of an entity’s financial operations. Most accounting firms, however, don’t have the skills to prepare statutory financial statements or the expertise to ensure an entity complies with the recognition, measurement and disclosure financial reporting requirements.
As part of the audit process, auditors have historically played an essential role by assisting organisations in complying with these reporting requirements. Due to the immense pressure for auditors to remove themselves from performing these non-assurance services, it has become apparent there is a significant gap between what the role of the auditor will be and what the role of the accountant will require.
On this basis, we recognise there may be a requirement for the accounting profession to establish a new ‘breed’ of accountant, to close this gap and fill this role.
New ‘Breed’ of Accountant
To comply with the new auditor independence requirements, both auditing and accounting practitioners are at a crossroad as to whether they discontinue their auditing services or discontinue their accounting services.
As there has been limited information and guidance made available as to who would be best placed to become the new ‘leader’ in the financial reporting space, we can only speculate that this will create a need for a new ‘breed’ of accountant to be established.
On face value, the ‘financial reporting accountant’ would ideally be performing the ‘non-assurance services’ and potentially ‘value-add services’, which were previously performed by auditors.
These services may be:
- Compilation of financial statements, reports and other reporting requirements;
- Compilation of accounting policies, procedures and methodology applicable to the entity (including estimates, judgements and other disclosure requirements);
- Developing tools, resources and other necessary documentation to enable compliance with the abovementioned accounting policies, procedures and methodology;
- Presentation of financial statements and other reports to management and those charged with governance (TCWG) prior to their authorisation for issue;
- Circulation of newsletters, articles and other marketing resources which outline new, amended, and upcoming changes in regulatory or financial reporting requirements;
- Provision of training and development to individual client’s or group of clients based on their financial reporting requirements or industry;
- Liaising with accountants to ensure compliance with annual financial reporting requirements; and
- Liaising with auditors to ensure compliance with annual auditing requirements.
Given there is a high level of uncertainty in this space, and a potential shortage in these ‘financial reporting accountants’, we may be in a position where:
- auditors are comprising their independence by continuing to perform these services; or
- accountants are performing these services without the necessary skill, knowledge, or experience to do so.
Importance of Client Education
Firstly, we can’t ignore the fact that entities who delegate the financial reporting function to an external accountant or auditor, may not be completely aware of their financial reporting responsibilities, and that outsourcing this function does not reassign this responsibility to the external provider.
The grey area between ‘doing’ and ‘compiling’ is one of the key contributing factors which lead to the change in the independence standards to begin with. So now, more than ever, it is imperative that both auditors and accountants work closely with their clients to educate, provide resources, tools and other necessary information to enable management and those charged with governance (TCWG) to take complete control over the entity’s financial reporting process.
Ideally, management and TCWG should be able to explain to their key stakeholders and shareholders:
- How the entity’s financial data was populated;
- What assumption/s, information and methodology was used during the decision-making processes which were required to determine the necessary accounting treatment of the entity’s financial data; and
- Other ongoing considerations which may result from changes in Australian accounting policies and interpretations, including legislative requirements.
Establishing Terms and Closing the ‘Expectation’ Gap
Accounting and audit firms who prepare financial reports on behalf of an entity, should ALWAYS ensure there is a signed terms of engagement on file which CLEARLY articulates the nature, timing and extent of the services to be provided. Too often this results in confusion between the parties between who is responsible for what, and when.
To limit the risk of this occurring, the terms of engagement should not overlook the importance of establishing the following:
- The roles and responsibilities of each party involved, including specific reference to the entity’s responsibilities for keeping sufficient records;
- The ownership and storage of financial data/information received, and how it is subsequently retained on file/accessed by all parties;
- For accountants, details surrounding delegation of authority (for example, journal entries, changes to the chart of accounts, changes to the user access and settings within the accounting software);
- For auditors, details surrounding how the audit firm maintains independence when also engaged to perform audit services (for example, using an independent financial statement preparation team that does not communicate with the audit team, or the quality control measures implemented by way of review and approval of a senior skilled and experience team member who is independent to the audit team);
- Other internal controls and monitoring procedures implemented by the accountant or auditor as part of their quality control framework;
- Reporting requirements to management and TCWG;
- Reference to any policies, procedures or legislation in which the accountant must comply with during the conduct of the services; and
- The need to adjust and reconfirm the terms as and when they change.
The team at National Audits Group pride themselves on their ability to connect with people on all levels and assist in any way they can to close this gap.
In one of our upcoming articles, we will discuss the auditing standard ASA 402 Auditing Considerations Relating to an Entity Using a Service Organisation in further detail, and how this standard will become more applicable to audit engagements in the years to come.
Danielle Nye RCA, CA, JP
Associate Director
National Audits Group
More than just auditors
T 1300 734 707
Danielle joined National Audits Group in 2014 as a Senior Auditor and swiftly made her mark, being promoted to a manager role and then recognised as an Associate of the firm at only 28 years old. More recently, Danielle was appointed an Executive Director and Shareholder of National Audits Group, effective as of 1 July 2021.
Danielle is committed to the continuous improvement of the technical resources, tools, and templates used within National Audits Group and the profession as a whole. This commitment is driven by her passion for the profession and working closely with likeminded individuals who share her passion.
As such, Danielle prides herself on being our dedicated in-house Technical and Standards Specialist as well as our Training and Development Facilitator.
With Danielle’s experience, passion, approach and dedicated team of professionals, you will find that she is perfectly positioned to fulfill your engagements and ultimately provide your organisation with the services it requires.
Danielle forged her professional career by consistently demonstrating her passion and enthusiasm for the audit profession while completing her university studies, obtaining her Graduate Diploma, and becoming a Registered Company Auditor with the Australian Securities Investment Commission.
In addition to the abovementioned roles, Danielle has served as a volunteer Committee Member of the NSW Riverina and Southern Tablelands Group of the Chartered Accountants Australian and New Zealand (CAANZ) since 2018.
- Audit Training – Why It’s Important & What to Consider - 5 December 2022
- Is Remote Auditing Here To Stay? - 24 February 2022
- Cybersecurity and External Audits – Risk and Response - 19 January 2022
