The Parliamentary Commission on Banking Standards’ report Changing banking for good says that “audited accounts conspicuously failed accurately to inform their users about the financial condition of banks”.
Parliamentarians and the public expect auditors to prevent disasters like the banking crisis. The many governance failures since the banking crisis may indicate that the expectation is unrealistic even when an audit is carried out correctly because of the way in which audits are carried out.
Although audit has improved since the financial crisis, it is still retrospective, dependent on people behaving properly, subjective and unsystemic. It examines what has happened, and the past is an unreliable guide to the future. It can’t provide assurance.
Even if the expectation is unrealistic, it’s unlikely to change. It’s an opportunity for audit firms because many organisations and people would like auditors to prevent financial disasters.
Influence the future
To move from examining the past to influencing the future, audit would need to change from focussing primarily on finance, the end of the value chain and what has happened, to look also at the root causes of success and what will probably happen. It would need to become predictive.
Make corporate reporting predictive
The digital Perendie platform ® allows and requires successive levels of the organisation to say what outcomes they will contribute to the delivery of the strategic outcomes, what they will need to do to achieve those outcomes, and what resources they therefore need to employ.
Consequently, the platform gradually collects and connects every outcome, activity and resource required to achieve an organisation’s mission. It integrates all the causes of success and leads people to challenge their current deliverables, ways of working and resourcing.
The information on the platform is open to inspection by any stakeholder at the touch of a button, which encourages ethical behaviour, predicts delivery and prevents problems by showing what everyone’s doing and what’s likely to happen, incidentally making audit part of everyone’s day job.
The Perendie platform ® would close the gap between the public expectation that audit should prevent problems and the reality that audit is primarily retrospective.
It automatically and objectively determines whether a fact or circumstance would affect the ability of the entity to generate or preserve value in the long term, the relative importance of a matter to the entity’s development, performance, position or future prospects, and the probable impact of its activity.
The platform enables interested parties to assess the likelihood of an organisation delivering the outcomes it has decided to deliver, and whether directors have performed their duty under section 172 of the Companies Act 2006.
It explicitly and transparently links remuneration to the delivery of outcomes, exposing unfair and excessive remuneration.
It provides, current, transparent and predictive Integrated Reporting.
Supporting data analytics, it pre-determines meaningful patterns in data, providing a business-driven taxonomy to grasp data, make sense of it, make it useful, and view it from a leadership perspective.
Application by auditors
The Perendie platform ® is applicable to any organisation. Its application is a consultancy service which can legitimately be delivered by an organisation’s auditor because the current, complete, transparent and predictive information it provides would improve the quality of the audit. It would also increase the chance of smaller firms obtaining work from large organisations because the platform would simplify and expedite data gathering.
Most people avoid change unless it is clearly in their interests; and even more resist radical change. Therefore the platform is applied gradually, starting with the leaders developing a strategy & risk map to communicate their strategy succinctly and powerfully.
Support the FRC’s five pillars
“The Financial Reporting Council (FRC) has announced plans to enhance its monitoring of the six largest audit firms to avoid systematic deficiencies within firms’ networks, disruption in the provision of statutory audit services and instability in the financial sector.
The FRC will focus its attention on five key pillars that are critical to the stability of the audit firms and quality of audit work. These are:
- Leadership and governance
- Values and behaviours
- Business models and financial soundness
- Risk management and control
- Evidence on audit quality, including from the FRC’s annual programme of audit quality reviews.”
Objective assessment of the proposed five key pillars would be a significant improvement on the FRC’s current assessments of audit quality which are wholly subjective. Moreover, the skills and technology required to assess the five pillars differ from those of a regulator like the FRC, and their assessment would be useful only if it was objective and systematic. The Perendie platform ® would fill these gaps by:
- providing leaders with a fast and efficient way of communicating their strategy, engaging people in its implementation, and assuring compliance with it
- increasing the visibility of peoples’ behaviour and performance and explicitly, objectively and transparently linking remuneration to the delivery of outcomes
- creating a completely integrated business model covering every aspect of the business
- predicting the probability of failure in time to take corrective action, and incorporating risk management into the business model
- facilitating audit quality review by providing a single joined-up view of everything an organisation is aiming and likely to achieve, do and employ.