This essay is part of our insights and resources to encourage discussions around the principles outlined in the Audit Manifesto.
Across the world, societies face economic, social and environmental challenges that are unprecedented in their complexity. In meeting these challenges, there are valuable roles for accountants and specialist practitioners such as auditors. In the past, accountants channelled their experience and expertise to drive social change. Double-entry bookkeeping transformed trade and gave birth to modern capitalism. Audit developed to build trust between investors and businesses and allowed companies to build trust and demonstrate ethical behaviour. Today, auditors can again take the lead in the journey to a fairer and more successful society – but only if the profession can reinvent itself.
The global pandemic has prompted many questions around the need to rebalance, restore and reinvent the economies of many countries. The AuditFutures’ and RSA report (from 2014) Enlightening professions? A vision for audit and a better society raised similar issues and questions about why and how we might best rethink our economy and the role of the profession in society, without getting bogged down in ‘Groundhog Day’ discussions. This is the important question at the beginning and end of this report.
What kind of society do we want to become and what is the role of auditing in it?
Roles for the audit profession
Capitalism is fundamentally a market-based system. Many people are focussed on the notion that the best thing that we can do today, to fix the system, is to sort out the different types of market failures. But markets are outcomes. They are the result of interactions between business, government, the public sector, households and so on. These interactions create markets and market pressures. Relieving these pressures may require those interactions to be reshaped.
During the launch event for our report on enlightening professions (which is the subject of a short film) the discussion suggested an important role for the audit profession. The discussion pointed away from “just sitting and putting bandages here and there” towards setting up a framework to allow us to answer the big questions that the report sets out. The auditing profession could have a role in shaping its relationship with society and ask another brave question.
What kind of businesses do we actually want to have?
New ways to contribute
AuditFutures’ engagements with diverse stakeholders suggest that there are many ways in which the profession could potentially contribute. For example, we often hear that we are governed by short-termism and market pressures; and there is huge variety in how business organisations react to these market pressure across different sectors. The bigger challenge here is how we should enable organisations to make better choices, by providing them with better options.
This is challenging for businesses both practically and technically. If we want to be able to encourage long-term investments over short-term speculative investments, we need to be able to value and audit those kinds of investments in a different way. Should there be a role for audit in creating the challenges for business – how to face these market pressures and how to be able to justify the level of long-term investments?
There are other ways in which the audit profession could help to transform the economy so that we can be smarter in our management of available resources. To assess them, we need to carefully consider some of the fundamentals of value creation, and our report on enlightening professions does this and poses some fundamental questions.
Value creation and extraction
Where does value originate? This question is bigger than it may at first appear. It is not just about where value comes from in the first place, but about the ecosystem that value creation requires. Who are the different types of key actors in the creation of value? What level of value extraction is desirable and who decides? How can the audit profession nurture the kinds of processes that can measure or limit value-extraction?
As much of the debate on reinventing the economy has been divorced from value-creation, we have to question what we know about wealth creation processes. At the RSA launch event, economist Marianna Mazzucato challenged the audit profession to rethink its role in wealth creation. She argued that audit needs to find a language that can easily be understood by a wide range of stakeholders and engage and secure trust from society more widely. This is missing today and its absence prevents us from communicating and nurturing different types of conclusions about what it means to create value.
Enlightening professions?
In 2014 we partnered with the RSA to articulate a vision for audit and a better society. The key messages are indeed inspiring for the profession today.
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What kind of society do we want to become?
Key takeaways from the keynote speech delivered by Professor Mariana Mazzucato at the launch of our joint report with the RSA
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