There is a ‘culture of fear’ in audit that prevents junior auditors from speaking out, says a new report from the Institute for Public Policy Research (IPPR).
The report, ‘Remaking Audit: A plan for culture change and regulatory reform’, claims that long working hours and high-pressure environments both help to discourage junior auditors from raising concerns they might have about the work they are doing.
Many of those starting out on their audit careers with the accountancy firms also fear what ‘being difficult’ will do to their careers.
The IPPR report says junior auditors need to be actively trained to speak up and raise concerns with the audit senior. The idea is to openly discuss failures. There must also be clear timelines to feed back the outcome of any issues junior staff raise.
Shreya Nanda, IPPR economist, said: “Audit firms should openly discuss past cases of audit failure, and routinely analyse their root causes with new joiners. To this day, NASA analyses the root causes of the explosion of the Challenger spacecraft as part of the induction for new staff.
To prevent another Carillion, audit firms should learn from NASA, and do just the same.
“We need to bring the audit industry into the 21st century by stepping up regulatory oversight and ensuring that, among other much-needed change, the failings of its internal culture are also addressed.”
The report’s authors say a complete culture change within the UK’s audit industry is needed to ensure that other crucial reforms fully restore public trust in the system.
Without a new approach that encourages challenge to clients and speaking up within the audit firms themselves, there is a real risk that past mistakes will be repeated.
Culture change within the industry, including the dominant Big 4 audit firms, should not be treated as an afterthought but should be rigorously prioritised, defined, put into effect and tracked.
The IPPR paper, the second in a series of three, comes as the government is considering reforms to the industry, proposed in its recent white paper. IPPR argues that auditors should be set a renewed public purpose of becoming a trusted referee of business so that audit is fa more than a ‘tick-box exercise’.
That means stablishing confidence in audit firms’ ability to detect and warn of fraud, financial misstatements and problematic accounting practices, and to live up to the same standards in audit-related consulting activity.
This is crucial if the industry is to be trusted with a broadened role, also advocated by IPPR: to report on the quality of business governance, environmental risk reporting, and data and cyber governance.