Courageous reporting

Confidence in businesses and public institutions is essential to New Zealand’s prosperity. High-quality reporting, backed by independent audit, are the cornerstones of that confidence and, in turn, the jobs, wealth and wellbeing created by those businesses.

Of course, directors and auditors both have roles in building and sustaining that confidence. Accounting is about being held to account for the results and position of the organisations that directors govern. Directors have ultimate responsibility for telling a true and fair story to investors, regulators and communities.

New Zealand organisations are becoming more complex. They are more transnational, more digital, less tangible, more dynamic and less stable. This organisational intricacy is why auditors also play a crucial role in ensuring confidence in the market.

When we spoke to directors, investors and regulators about what makes a high-quality audit, they talked about a range of things, but kept coming back to one thing in particular – courage.

“The first attribute I look for in a new audit partner relationship is courage and being brave,” says Bruce Hassall CMInstD.

Audit quality takes courage

Courage has a number of different contexts when it comes to delivering a quality audit. Our conversations with directors, investors and regulators explored three themes:

1. Courage within our audit teams.
2. Courage in our relationship with client management.
3. Courage with the board.

It starts with team members having the courage and confidence to raise their hand when they don’t understand, they disagree, or they haven’t had enough time, experience or expertise to complete a task.

That confidence comes from the way their supervisor, manager and partner behaves on the job.

And that, in turn, starts with the values of the firm, the culture and the tone at the top.

Issues that arise on audits are not always from the risky or judgemental areas of the entity that attract the most manager or partner time. They can sometimes arise from areas junior staff work on. It is vital that all team members understand the role they play in delivering a quality audit.

“Culture and values are the most important,” says Jacco Moison, Head of Audit & Financial Reporting at the Financial Markets Authority.

“You can have the most brilliant people, but if they aren’t in the right environment to put their hand up and say something is wrong, that is the biggest risk.”

Experienced directors also emphasised the importance of auditors having a courageous relationship with management.

Courage with management requires individual auditors not to ‘let things slide’, not to be fobbed off by a light management response, not to rely on weak evidence, and not to be intimidated.

A power imbalance can come from junior auditors dealing with more experienced management teams. This means the make-up of audit teams in the field is particularly important.

Audit work is teamwork and audit teams need to be led by regular, engaged and supportive supervisors, managers and partners who are there to encourage their team members to understand where that line is drawn.

Challenging evidence, judgements and estimates to ensure they are robust is the essence of an auditor’s relationship with management teams.

“The auditor needs to challenge the business,” says Susan Paterson CFInstD.

Finally, a good director acknowledges and understands the purpose of auditors challenging them. A good director wants to be challenged, because that means the auditor is doing their job, and in turn the director is fulfilling theirs.

That starts with courage in the communication between the auditor, management and the board. Regular, open communication that is focused on the hard things, explores alternative views and judgements, and draws a line appropriately where it should be drawn is essential to auditors and directors playing their roles.

“The auditor-management-board triangle must be strong. Face-to-face discussion between the audit partner and the Audit Committee Chair or Audit Committee is an essential part of the three-way communication,” says Jonathan Mason CFInstD.

Push for auditors to have a courageous, open relationship with you. Expect it, demand it and challenge when you are not getting it.