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6 Feb 18 - AFR--Deloitte CEO Cindy Hook looks way beyond audit

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JWheldon
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Joined: Wed May 24, 2017 6:43 pm

6 Feb 18 - AFR--Deloitte CEO Cindy Hook looks way beyond audit

Post by JWheldon » Wed Feb 07, 2018 12:09 am

Isn't now time for the audit industry to move with the times and change the nature of the audit, before all the confidence in their services are lost or have the members in the not for profit sector already lost confidence in their services?

The not for profit sector has so many problems, yet the traditional audits undertaken by the Big Four has become so out dated. At this rate the future audits will be done by computer programs, like the ATO use for audit reviews.



by Edmund Tadros - AFR 6 February 2018

Deloitte CEO Cindy Hook looks way beyond audit

The shift of Deloitte Australia away from its accounting roots has reached the point where only 15 per cent of its income now comes from the statutory audits of companies.

That is the lowest percentage of any of the big four accounting and consulting firms. Only $261 million of Deloitte's $1.78 billion revenue last financial year came from statutory company audits. The proportion of financial audit work has be dropping by about 1.5 percentage points a year.

It follows a similar shrinking pattern by the other big four firms where the proportion of revenue from statutory audits is now 19 per cent at PwC, 21 per cent at KPMG and 22 per cent at EY.

CEO Cindy Hook, the former head of the firm's audit and assurance practice, is unapologetic about the firm's strategy of moving into a broader range of offerings by developing new services and through small-scale acquisitions.

"I think the strategy is to put together a broad array of capabilities that create solutions. And accounting and assurance skills are still a big part of that but as the world becomes more digitalised, digital technology has to be part of it, and human capital has to be part of it and strategy has to be part of it," she said.

Ms Hook is keen to see Deloitte grow rapidly – revenue growth reached 15 per cent last year, the fastest rate of any of the big four.

"The only reason we're growing at 15 per cent is we are investing. And you have to think about a partnership; we don't have a balance sheet like a corporate [firm] does. We have to invest partner equity in this. And that's a choice that the partners have to make between paying themselves today or investing for the future. And if you're not growing and you're not performing well, you don't have the wherewithal to continue to invest and get better and build the capability first," she said.

She added that growing organisations are vibrant and attract talent.

Ms Hook noted that the data within the firms' transparency reports only covers audits of financial statements and doesn't cover auditors using their skills and assurance to do other things.
The percentage of statutory audit work by the big four has been steadily falling.
The percentage of statutory audit work by the big four has been steadily falling.

The market for large-scale statutory audit, which Deloitte and the other big four firms dominate, is growing more slowly than the market for consulting and advisory work the firms all now do.

The outgoing head of corporate regulator, Greg Medcraft, said last year that the auditing business model was broken. His view was that audit quality was declining because, in part, firms were not getting paid enough to carry out audits properly and were cross-subsidising their audit operations with more lucrative consulting work.

Ms Hook disputes Mr Medcraft's conclusion that audit standards are dropping.

"[We're] absolutely committed to audit quality and continuous improvement," she said.

"Less than 2 per cent of the companies in Australia even went to tender to change their auditors. So it's not growing. That doesn't mean it's not valuable and you know this myth that audit is unprofitable is not true. It's still a profitable part of the firm but revenue and profits aren't growing at the pace of other parts of the firm," she said.

The biggest local audit move last year was when EY beat Deloitte and PwC to become BHP's new global auditor from July, 2019. The audit role came up for tender because BHP's existing auditor, KPMG, was unable to bid for the work due to European Union and UK rules around auditor rotation which mandated a new firm had to be in place by 2023. The role was worth a combined $US16.9 million ($21.3 million) last year.

Rio Tinto, which is audited by PwC, is looking to have new auditors in place by 2020 for the same reason as BHP. The Rio Tinto audit and assurance work alone was worth $US15 million in 2016.

Ms Hook expressed confusion is the strategies of the mid-tier firms. These firms had mixed results, ranging from Findex, where revenue shrank slightly to $371.5 million last year, to Pitcher Partners, where revenue was up 13.8 per cent to $235.1 million.

She said: "So I can tell you a very clear strategy for the big four. I'm confused by the mid-tier. We are infringing on their space. We audit the mid-sized companies. And what is their strategy? How are they going to differentiate?"

edmundtadros@afr.com.au

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Brett Stevenson
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Re: 6 Feb 18 - AFR--Deloitte CEO Cindy Hook looks way beyond audit

Post by Brett Stevenson » Wed Feb 07, 2018 9:38 pm

It's a big issue JWheldon.
Thanks for posting it here.
I made some comments on LinkedIn in relation to it when Edmund posted it.
This is the sort of issue CPA should be involved in but unfortunately it has lost its credibility to be a voice.

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