AUDIT PROFESSION

SHORT TAKES

Compiled by Savithri Rodrigo

Q: What is your assessment of Sri Lanka’s audit profession in recent years?

Anoji de Silva (ADS): Regulators, the public and the corporate world have been questioning whether auditors are carrying out their work with diligence so as to maintain trust. This in turn has resulted in improving the quality of auditing with more focus on performing high quality audits.

Dulitha Perera (DP): The auditing profession in Sri Lanka is at a crossroads. There’s increased expectation of maintaining the quality of audits in an increasingly complex business environment with simultaneous pressure to reduce fees. Expectations will heighten with the envisaged regulatory changes.

Q: And how would you define a ‘high quality audit’?

ADS  Auditors plan, execute and conclude independent audit opinions based on financial statements. While drawing from audit evidence gathered in compliance with auditing standards, auditors must also document these results and the basis of their conclusions to justify opinions.

DP  A high quality audit is one that’s performed by a technically competent team of professionals guided by [the right] values, ethics and attitude. The team should follow a rigorous auditing process and quality control procedures, while leveraging on technology and innovative techniques.

Q: Which factors are driving the demand for auditing in Sri Lanka?

ADS  Regulatory requirements – entities coming under the Companies Act of 2007 must have their financial statements audited.

DP  Primarily these refer to the statutory requirements, regulations, price, quality and value addition.

Q: Are the methodologies used sufficiently agile to respond to emerging risks and technologies?

ADS  Top global accounting firms

have set up partnerships locally, auditing both listed and regulated entities. The global methodologies and tools used are constantly challenged and improved, to respond to emerging risks and technologies. When complemented by globally designed training programmes, the methodologies are sufficiently responsive.

DP  Ideally, methodologies should evolve with emerging risks and technologies, to be robust and responsive. Agile methodologies that respond to risks and technological changes are a function of cost vis-à-vis return. Some use methodologies developed through their international affiliations, which are responsive to emerging risks and technologies.

Q: Is the profession leveraging on the appropriate tools and talent to deliver smarter results?

ADS  Global auditing practices introduce cutting-edge tools locally but these are not effectively used as local companies are not equipped technologically. Auditing should become a profession of choice; we need qualified auditors to conduct fieldwork to address increasing complexities.

DP  Some use developed tools although a majority rely on conventional techniques. While it is increasingly challenging to retain the best talent, we must rescale and upscale the talent pool so as to keep abreast of the developments that are taking place.

Q: Do you believe the market provides sufficient choice and competition?

ADS  As the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) Code of Ethics dictates, auditors cannot advertise and must rely on selection through public tender, or recommendations by shareholders or boards.

DP  Wherever auditing is a statutory requirement, a choice must be made among licensed auditors, which usually results in a competitive price.

Q: Why is the role of auditors important in the public sector?

ADS  The public sector is significant to the national economy as it contains some of the largest enterprises. Therefore, timely audits conducted by auditors with the right skills to carry out such audits are critical for the overall health of the economy.

DP  While conventionally, the public sector was about the economy, efficiency and effectiveness, it has been transformed into a profit making business. This requires that the public sector follow appropriate reporting standards to assure taxpayers of accountability and transparency.

Q: And what would be the role of whistleblowers in this regard?

ADS  If whistleblower claims are valid when investigations are conducted, the standard code of ethics for professional accountants on responding to Non-Compliance with Laws and Regulations, which specifies actions to be taken by auditors, is brought into play.

DP  Whistleblowers must be cautious, and are expected to gather and provide substantial proof, based on which the Auditor General reserves the right to act. In Sri Lanka, protection for whistleblowers is weak.

Q: How can the audit framework be extended to SMEs and social enterprises?

ADS  CA Sri Lanka has already published frameworks for SME audits, nonprofit entities and even smaller audits. In addition, training programmes are conducted by CA Sri Lanka for auditors to perform effectively in such sectors.

DP  CA Sri Lanka has issued SME standards – and audits are conducted accordingly. While public sector social entities are covered by accounting standards, commercial organisations in social enterprises come under the purview of the Sri Lanka Financial Reporting Standards.

Q: How are audit firms addressing growing cybersecurity concerns?

ADS  Auditing is general-purpose; and while general and specific application controls are checked, cybersecurity risks may not be specifically assessed. Global firms have stringent IT security measures, which are monitored globally with stringent IT codes and practices.

DP  Having a robust system in place to combat cyber-attacks with the right people and processes is vital. This also demands the right technology, continuous training and awareness on susceptibility to cyber-risks that may be encountered.

Q: What are your growth projections for the profession?

ADS  Audits are conducted for statutory compliance and fees are based on the estimated professional hours spent. Charges remain static unless the scope of work increases and particular expertise is required. More qualified auditors and investment in audit tools are imperatives as they will lead to higher audit fees, and enable talent retention and competency upgrades.

DP  Growth stems from the number of companies statutorily required to be audited and growing pressure on the regulatory environment in which assurance services are sought by the regulator. It is obvious that a conducive business environment and positive sentiment contribute to growth in businesses, which in turn expands the audit function.

Q: How will audit functions need to evolve in the future?

ADS  With the use of more in-depth technology, the role of the auditor is expected to change.

DP  The only way forward is to embrace change and digitisation of the audit function.