MANDATORY audit firm rotation and joint audits, as proposed by the European Commission for implementation across the EU, are the main challenges audit firms are currently facing. The auditing profession is being redefined and a range of important local and global initiatives may soon transform the audit market. Mark Eberst, partner of KPMG in Slovakia, and Dalimil Draganovský, head of the Assurance Services department at Ernst & Young in Slovakia, shared their views on the current challenges the audit sector faces as well as how it has been affected by the financial crisis.
What are the biggest challenges the auditing market and auditing companies face locally as well as globally?
Mark Eberst (ME): Regulatory change is probably the biggest challenge for the years ahead for audit firms in Slovakia, Europe and globally. Major changes are under discussion, such as proposals by the European Commission to introduce mandatory audit firm rotation and joint audits, which would be effective across the EU. In the USA there is also an ongoing debate over the audit profession and the discussion there is far-reaching. These types of changes discussed in both Europe and the USA would have wide-ranging implications on the way audit firms operate and on the audit market in general.
Some of the other major challenges faced by audit firms today include recruiting and retaining the best people, especially during these challenging, changing times for the audit profession, and bridging the gap between public and investor expectations over what an audit can achieve and the natural limitations of any audit.
Dalimil Draganovský (DD): The biggest challenge on the audit market is to address two contradictory trends; namely, increased regulatory requirements at a time of continued fee pressure. New tighter regulatory requirements obviously result in increased costs for auditing companies, which are not always reflected in fees paid by clients.
How has the financial crisis, in your opinion, changed the auditing market and the role of auditing companies? Does the Slovak experience differ from that abroad?
ME: The role of auditors in maintaining investor confidence continues to be an essential element in the business environment, and the financial crisis has served to highlight this probably more than ever. In uncertain times it is vital that the investment community and stakeholders are able to rely on published financial information. The proposals under discussion on regulatory reform, both in Europe and the USA, are partly a result of the financial crisis. Although, with a few exceptions, auditors did not receive the blame for company failures arising from the crisis, debates over regulatory change have been held in light of the need to continue the trust in auditors, and to maintain the confidence of the financial markets and of business generally.
Given the large amount of foreign direct investment flowing into Slovakia and the importance of foreign businesses in the Slovak economy, as well as the fact that Slovakia is part of the EU and will be affected by the final form of the changes in EU regulations, many of the challenges faced by audit firms in Slovakia are similar to experiences in a lot of the other European countries.
DD: The auditing profession is now being redefined and there are various important local and global (EU) initiatives that will change the audit market in the near future. The extent of such changes depends on the final outcome of these initiatives, but it can be expected that the role of auditing companies will undertake significant change. Slovakia is part of these discussions at the government, professional organisation and auditing company levels and the approach and position of the Slovak Republic towards global (EU) initiatives is fairly professional and responsible.
This column is prepared in cooperation with AmCham, the American Chamber of Commerce in Slovakia, www.amcham.sk. The questions were prepared by The Slovak Spectator.
