What firms need to do now
With the enactment of the New Companies Act, far fewer companies are required to carry out formal audits than in the past. Many long-standing practices that relied on audits for a substantial part of their income are concerned about how they can adapt their practices to meet the challenges of the future.
Recently, CQS Technology Holdings invited Mark Levy of Berley Chartered Accountants in the United Kingdom to speak on the topic at their South African seminar. According to Ross Hampton, Divisional Director of CaseWare at CQS, “Mark Levy has seen similar changes in the UK over the past 10 years and has been lecturing to help firms understand what the future holds and how they can respond to it.” Firms in the UK not only survived but thrived with fewer audits – and South African practices can expect the same. “But,” warns Levy, “firms need to prepare now so they are ready for the changes as they occur. That means taking a long, hard look at how they have been running their business and how they need to run it going forward.”
Firstly, firms must realise that auditing as an assured form of income is no longer guaranteed. Therefore, they must prepare themselves to re-examine their strategies, seek out alternate income if necessary or be left by the wayside. Auditors, regardless of their profession, are first and foremost business people. As such, their obligation is to grow their company to maximise income while optimising their efficiency to protect profits, and thereby provide the best possible return on investment to their shareholders (even if they are the only ones).
Secondly, they should view this change as positive because it will allow them to rekindle an entrepreneurial spirit that prompts them to look for new ways to provide value to their customers. Partners will benefit as they sharpen their business skills, become more vigilant about profitability and cost control, and emerge as stronger business people from the experience. In order to be successful in the future practices need a mind-set change. They just have to get back to the basics of management and marketing. In so doing, they can identify where inefficient management practices need to be rectified and how reframing their services around benefits can help them to acquire new business. For example, clients who no longer audit may be persuaded to resume this function due to the higher personal liability directors face for inaccurate, misleading or false financial statements as prescribed in the new Companies Act.
Banks and business insurance providers could be approached and sold on the fact that only a thorough audit can provide assurance of the credit-worthiness or risk profile of corporate applicants. Further, clients could be convinced of the merits of an audit as a vital part of fraud detection and risk management. In other words, reframe the service around the benefits it provides (other than just to meet a legal obligation). Further, practices can cross-sell benefit-driven services like tax planning, consulting, litigation support, mergers and acquisitions, insolvency, business valuations, funding or arbitration. Clients place a higher value on exercises that provide the opportunity for business growth.
As Levy says, “It is important that firms must thoroughly understand their clients businesses which will allow them to identify needs and pain points, and this in turn will help create solutions to solve those problems and therefore really add value.” As they do so, firms should staff up accordingly, delegating where necessary to ensure that rudimentary tasks do not infringe on the billable time available to partners and professionals. They can also make use of outsourcing to offload work that can be done cheaply and effectively by specialist providers.
Levy also cites better use of technology to improve efficiencies, e.g. automating the practice using recognised, professionally developed software, embracing mobile technologies to keep in touch with your business from anywhere, or employing social media to more readily engage clients. Says Ross Hampton: “Mark’s advice supports the drive by CQS to ensure that practices become more efficient in a world of constant change. They can thrive by abandoning paper-based systems, automating their business processes, and becoming interconnected with the world around them. The change to the auditing requirements is just one instance that proves the validity and urgency of this vision. The accounting landscape is changing and the best response is preparation.”
Hampton adds, “We believe it is vital to ensure that our software evolves to meet our clients’ needs into the future, helping them to keep up with change. As a valued business partner we also want to provide ongoing practical advice to assist with coping with these changes.”