THE AUDITING business has faced a number of challenges since the “dot com” era of the late nineties and the current economic crisis is yielding even more. In response, auditing firms are concentrating on truly understanding their clients' business and developing more efficient ways to do their imortant work, even with reduced budgets.
The Slovak Spectator spoke to Peter Gunda, partner of Edison Audit, a member of The Edison Consulting Group, about the profession, the effects of the economic crisis and what he expects for the future.
The Slovak Spectator (TSS): How has the financial and economic crisis influenced the auditing sector in Slovakia?
Peter Gunda (PG): Audit clients in general are expecting more for less, as they are forced to be much more cautious with their finances. The 300,000 Slovak crowns spent a year ago are definitely not seen as the same as €10,000 today. What could have been a fair price for audit services before the crisis is no longer the case and for many companies, especially in the small
and medium-sized (SME) segment, audit fees have started to become unbearable.
As a result, many companies have been recently motivated by the current distressed economic circumstances to change their auditors. This switching between auditors is most notable in the SME segment.
On the other hand, regulators, lenders and all the other stakeholders tend to be more formalistic and expect auditors to not only pinpoint any problem but to actively assist with preparation of a remedial plan.
The auditors themselves are struggling with their reduced budgets and at the same time – with almost surgical precision – are considering each and every client’s ability to continue as a going concern. What was once deemed a remote risk is currently at the very centre point of all audits and everyone seems to be much more interested in the most basic question: “Is this company capable of surviving in the foreseeable future?”
Survival, not growth, is now the top priority for many businesses. What this means for auditing firms and their daily business is that they must concentrate more on truly understanding the businesses of their clients and develop more efficient ways to conduct audits within their reduced budgets. It also means that there are many more regulations to follow, less hours billed and more hours to be “written off”. In spite of this, the crisis improved the HR situation and access to the very best people because the labour market is virtually saturated, making this the best time to hire.
TSS: Which new products has your company offered in response to the current challenges in the market?
PG: Our firm has recently introduced and successfully launched several new products that have the ability to address the current situation on the market.
We have also strengthened our position in several service lines that we have been traditionally offering to our clients in this region.
Above all, I would like to highlight the cost-cutting projects that are specifically geared towards assisting our clients with successful and efficient implementation of cost reduction strategies, ranging from relatively simple engagements focusing on a specific area of operations to complex corporate restructurings.
At the Edison Consulting Group we believe that restructurings, turnarounds, corporate recoveries and bankruptcies are going to be frequent occurrences in Slovakia in the upcoming months. Our team of professionals is ready to assist our clients in all these areas and we are also ready to significantly participate in the overall project outcome through our success-fee structure of remuneration. We are also ready to accommodate specific requests for interim crisis management and various other outsourced functions.
TSS: Which services are clients most interested in?
PG: Currently, the biggest demand is for all types of cost reduction and restructuring projects. We are also experiencing a gradual recovery in the M&A (mergers and acquisition) market with several new projects recently announced; and we expect to witness many more of these as more so-called forced mergers and acquisitions will gradually take off in light of further unfolding of the global economic crisis in Slovakia.
TSS: What further developments do you expect within the auditing profession?
PG: After the “dot com” era of the late nineties and the Enron collapse eight years ago, the auditing profession has already had a unique chance, as well as considerable motivation, to improve the way that a traditional audit is done.
Although many things are different now and an audit is definitely no longer conducted as it once was, recent developments in the global economic market have shown that this chance was not fully grasped and was rather overwhelmed by the volume of new regulations and countless mandatory questionnaires focusing primarily on assessing a company’s internal controls environment.
Unfortunately, the auditing process still seems to be a step behind the real business by not
addressing issues in a timely manner.
Therefore, I truly believe that the profession will have to concentrate more on a business-oriented approach rather than the purely administrative approach that has evolved in recent years.
The key to a quality and added value audit is to appropriately understand the business of each client and their business economics and, based on this, to promote further industry specialisation within each and every audit team.
We can also expect that regulators worldwide will continue endorsing further directives trying to enhance the auditing profession and apart from that to take appropriate actions that would address the very roots of the current economic crisis.
In terms of the Slovak market, I anticipate that audit clients will need to start paying much more attention to the preparation of basic accounting documentation and they will need to be better organised within their finance departments and in this way deliver appropriate support to the audit teams that are already struggling with reduced budgets.
At the same time I expect that the local auditing community will maintain its current defensive strategy in terms of admitting new statutory auditors and that the certification process itself will continue to be rather rigorous and the new generation of auditors will have to wait longer in front of the closed doors of the chamber.
However, in my opinion this is bad news for the auditing industry as a whole since allowing young and open-minded professionals into the field could potentially bring new progressive ideas on one hand and improved client services on the other.