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February 6, 2014

Audit needs to evolve to stay relevant: KPMG

KPMG has called for the role of auditors to evolve or risk becoming less relevant to stakeholders, following a series of interviews with 16 KPMG audit leaders from various countries.

One area that could improve, according to some respondents, was a move away from a binary pass fail audit opinion to a more narrative-based opinion.

KPMG global head of audit Larry Bradley noted that auditors had broader access to companies than almost any other profession, adding "what we’re finding is delivering a binary report is not providing investors with all of the insight that they need in order to make their investment decisions."

Additionally, there was a fear that, in some countries auditor’s needed greater communication than just the auditor’s report, with a number calling for auditors to discuss their knowledge or findings with shareholders or even economists.

This was coupled with a general feeling that auditors had not innovated, but that this was starting to change with trends such as predictive analytics and new technology bringing the profession forward.

Looking ahead, Bradley warned "our primary product is based on a historical set of statutory financial statements".

"However, stakeholders are clearly increasingly basing their decisions on information that resides outside of those statutory accounts. That is the single biggest issue, I think, that we have as a profession."

Despite this, there was general acknowledgement that audit quality has improved since 2007, for example global vice chairman of quality and risk management, KPMG, Larry Leva noted "the significant improvement in audit quality started in the days of Enron and WorldCom."

The International Auditing and Assurance Standards Board (IAASB) and the US Public Company Accounting Oversight Board (PCAOB) are both currently consulting with the profession and stakeholders on changes to the auditor’s report.

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KPMG

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