Auditors change their response to the market’s flaks

The auditors get ready to change their position before the distance between the service they propose to provide and what market participants expect from them.

By Fernando Torres | From São Paulo | Jornal Valor Econômico

The auditors prepare get ready to change their position on before the distance between the service they propose to provide and what market participants expect of from them.

Instead of in every corporate scandal they try to explain that only the audit of financial statements does not include thorough search for fraud and does not mean certificate of good management or the company's success in the future, the order is now being open to discuss new possibilities of service, that which may include the above items.

"If market participants see value in the operational audit of indicators of operational performance indicators (KPIs), for example, or when we tell whether a company has prospects of success or not, we will discuss with the profession about how we can do this," says Charles Krieck , audit partner of KPMG in Brazil.

The idea is to be open to ensure the accuracy of other information in addition to the balance sheet, in order to be considerable  the market considers as relevant for value creation by the market, as reserves of mineral resources, sustainable practices and applications portfolio, quotes Larry Bradley, Principal global executive of KPMG audit area.

"It is quite clear that what determines the value of a company are not only its historical financial information, but a large number of non-financial measures," he says.

So that the auditors may issue an opinion, they say, just thatit is enough that there is a comparison model or a conceptual frame of reference established by an independent body such as the International Integrated Reporting Council (IIRC) or Sustainability Accounting Standards Board (SASB).

To improve the perception of the traditional audit service balance, the objective is to invest in databases and statistical tools to improve the quality of work, and increase transparency, to with the defense of new models of audit opinion, thatwhich should leave to just follow the model "with or without reservation" that exists today.

In this new model of opinion, auditors should disclose to the public at what were the most critical points discussed with the management of the company - especially when there is need for a trial judgment - and also present a more detailed insight into one of the basic assumptions of accounting, which is the "survival of the entity".

Not only has have the applicant questioning from customers and investors questioned about the relevance and scope of his their work, but also the auditors would have to rethink the future because of at least two other reasons.

On the financial side, the audit service is losing relevance in the total turnover of the large consulting firms. The share was close to 48% of total revenue in 2009 and fell to 43% in the last fiscal year, with no planned change in direction in the short term.

At the same time, theise market regulators themselves have pushed for changes. In Europe, a drastic makeover for this market has now become a matter of time.

In early April, the European Parliament adopted a new law that requires from mandatory audit firm rotation every ten years (may be postponed for ten more) as well as the expanding expansion of the list of services that auditors are prohibited from providing for their customers in order to minimize conflicts.

Among the services come vetoed are tax planning, support in processes of tax assessment, preparation of tax returns, legal advice, processing of payroll and tax calculation.

According to Bradley, from KPMG, you can not anticipate that the caster rotation will cause a drop in fees across the European Union, as occurred in Brazil, but otherwise there is no denying that the change will be a challenge.

The executive also expressed concern about the coexistence of rules that limit the services that can be provided, the rotation and the need to be at least a "clean" year - without paying providing any critical work for the company - at the time of exchange of auditor.

But this concentration on PwC, Deloitte, KPMG and EY is exactly one of the points that the new European law intends to attack, which can make room for firms in the second group, such as BDO, Grant Thornton, RSM, Mazars, Baker Tilly, Crowe Horwath, Nexia and Moore Stephens.

"If a company has a large global firm as auditor and another providing tax services, she it can have only one option on the market at the time of the exchange," said Bradley, to considering what that can be the desireable of by the client being audited by one of the four largest of the market.