MIPA Conference on 6th August 2025 at InterContinental

I am grateful to MIPA to have invited me. FYI MIPA Chose the topic and the timing of my address. Last Year I stood between you and your lunch..this year am standing after   lunch and disrupting your nap!!

Let me first try to wake you up

There is a Non Negotiable emphasis on Audit Quality: We know we cannot compromise but does the client see the Audit Quality or do we have a client who cares care only about getting a clean audit opinion in a timely manner?

• How do we reconcile offering a service when the client is looking for a product?
• How do we price a service which is perceived as a product?

In essence this is the challenge  face by the audit profession!

Let me start by asking you a simple question. How many of you recognised this logo?

Have you heard of an Institution called REVOLUT?

It is short for Revolution in the Banking Industry set up by a Russian based in London

It has 50m customers,  profit of GBP1bn for a GBP3bn revenue and is valued at $65bn. (Revolut in talks to raise new funding at $65bn valuation )

Is it bank? Is it a Financial Technology Company?

It is a Bank licensed by ECB in 2018. and was granted a conditional banking licence in UK last year currently a source of disagreement between the Chancellor and Bank of England Governor

The delay was due to its auditors wrangling with its financial statements.

How critical was audited accounts to the approval process?

What was more important the audit of the financial statements or the fact it has 50m customers and not regulated by Banking Act?

This raised question about the importance of audit, its continued relevance and the impact technology will have on businesses including the audit industry.

Can every licensed auditor audit Revolut?

Every economy, every business is being impacted and disrupted by digitalisation. It is enhancing efficiency, simplifying business processes, reducing operating costs.

The customer behaviour has also changed, there is less human interface and its all down to the seamless digitisation process.

We are seeing major change in business landscape, the market is shifting in uncharted territories and visibility is not there.

The audit industry has seen some changes and will not be spared of a Tsunami going forward.

Our generation has used the traditional phone, has seen the first mobile but more importantly we have witnessed the emergence and collapsed of NOKIA3310 and Blackberry. This is how fast technological disruption is happening, No business is lasting …you don’t have to be made in China to break easily….

When you audit, can you still rely on valuation using Terminal Value….discount to infinity? I leave it to your judgment. Even Risk Free Rate has to be adjusted these days given state of some of the economies

My concerns are as follows:

1)The transition to digitalisation  is happening at a too fast rate

2) The cost of embracing the technological change is way beyond AFFORDABILITY

3) Many auditors may become irrelevant

4) Ethics may be compromised to ensure survival

CHANGING LANDSCAPE

Auditors are used to look at historical data. The change now is to audit in the present time. With Blockchain, audit will become continuous, instant. It will be system driven.

Also, audits will be more off-site, more so in financial services sector, and data will have to be access and audited in real time. Are we seeing the trend to continuous audit? Are clients prepared to pay for continuous audit?

With technology occupying such a strategic importance in the new businesses, the auditors must be at the forefront of technological innovation and development. Most accountants have a finance degree currently. Going forward, does this make them relevant? We shall need accountants with a strong IT background. This is the resourcing aspect.

Then, the audit firm will need massive investment in technology in order to be able to serve their clients. This investment will allow auditors to process larger volumes of data more efficiently and accurately, while also identifying potential risks and opportunities more quickly.

 It is not just technology to be able to be more efficient but if you do not have the right technology how will you audit a bank or a payment provider which operates only an IT platform? Which client will come to you if you cannot demonstrate that you are keeping abreast of technological developments?

 

MARKS & SPENCER UK

Marks & Spencer in UK suffered a cyber attack recently and this adversely impact its online trading and profit by GBP300m.

• Will this be a high risk audit?
• Is there a reputational risk ?
• What’’s the auditor’s appetite to this?

At planning stage, the level of information on the company, on the industry and reputation of its management will be available in the open.

How do you reconcile reputational risk with client on boarding? In Emerging Countries like ours a lot of negativity is available on social media. How far will this influence onboarding decision?

P&O: WHATS IN A NAME….DOES SIZE MATTER?

This is also part of the changing landscape: Opportunity

P&O Ferries has appointed a tiny audit firm from Oxfordshire to replace KPMG after the so-called “Big Four” accountant resigned unexpectedly in March.

Just Audit & Assurance (JAA) has four employees and is based in the market town of Witney.On its website, the company describes itself as a “specialist firm created to address the specialist needs of the smaller company and charity audits”.It is not an obvious choice of auditor for a ferry operator which reported sales of almost GBP1bn. It clearly reflects that when a client is buying a commodity, it goes where it sees value.

What’s in a name? The trend of Big Companies going for Big Names Audit are fading.

 AUDIT QUALITY: SQUEEZING OUT PLAYERS

Reconciling quality audit work with commercial considerations is a tough balancing act without adding the downward pressure that fees come under, and talent needs to be rewarded handsomely to avoid attrition let alone the ability to attract new talent.

Now with digitalisation there is opportunity to increase efficiency and with integrated tools a lot easier to dive into data analysis ensuring data integrity. This will help in ensuring better risk assessment , better documentation and better scoping of audit work.

In Financial Services Sector predominantly, the advance analytics will ensure better transparency, risk identification and minimise risk of fraud. It will also be easier to audit. The shift will be from substantive to predictive audit testing and that too with the level of accuracy which human alone could not have achieved

The bigger question is can every auditor be eligible to be appointed to audit in financial services sector.

Will small and medium size firms have resources to invest in technology? The market will erect its own barriers to entry.

Will IT Firms compete with Accounting Firm for audit?

PROFESSIONAL JUDGMENT: OPINION vs FACT

Although clients are becoming more sophisticated and auditors will have at its disposal an arsenal of tools, the audit work will be easier yet it is no substitute for exercising professional judgment. The machines will not replace the auditor but will facilitate audit work.

An audit opinion remains an individual opinion and this will not change. However, i see a change with technology that the opinion can be replaced by a statement of fact. If you are auditing a system, then data integrity is assured then you can shift from an opinion to a statement of fact. Is it asking too much?

ETHICS & CHALLENGES

8.1 Investment

The first hurdle is the substantial investment the audit firms need to undertake to be able to cope with the changing nature of the client business.

What will be the impact of investment in technology on audit fees? 

When will efficiency pays for itself?

The trade off between quality audit and profitability?

8.2 Costs Implication

• Can this investment be from funds generated from operations?
• Will this investment brings new business or will it be to ensure existing jobs are preserved?
• What is the cost benefit analysis?
• How will it be funded?
• What is ROI?
• When is payback?

8.3 Professional Scepticism

• With technology as a tool to check the client system,
• where will professional judgment come from?
• Are we signing off hoping everything will be ok?
•  Will it be a case of the auditor riding a Tiger?

8.4 Inherent bias.

Will you question a system from IBM or Microsoft? Will the auditor assume it must work…..i can be wrong but not Microsoft

8.5 SKILLS

the auditor will need to be super skilful to manage the technology and to understand the client business which is technology driven. Otherwise, a case of blind leading the blind.

• How many in this room feel capable of leading the audit of Revolut?
• How will firms reskill staff?
• Over what period?

8.6 NON FINANCIAL AUDIT

 Apart from auditing financial statements there will be new avenue for audit: Example you are buying online and you have to make payment: It will add credibility if it says that this payment system has been audited by ABC. There will be ESG Audit too.

TECHNOLOGY/QUALITY/ETHICS: NEW TRIPOD

By embracing Technology and digitalisation of the audit process it will bring efficiency and will also allow auditing the tech companies in a much more comprehensive manner

However, there is no trade off regarding quality of audit work. Documentation will be simplified and the audit checklist will be ticked electronically. Completeness of audit tests will be easily validated

This does not mean that professional judgment will be skewed and exercising scepticism will even require a higher threshold. Ethical standards and Ethical Values will need to be inculcated even more strongly.

Technology won’t save shortcomings in your leadership

My closing Remarks:

Digitalisation is changing the landscape: More opportunities than threats but you either invest or you die

Public Trust is non negotiable as higher threshold of ethics will be required

Integrity of data and Integrity of professional conduct go hand in hand

Technology won’t replace auditors. But it will expose every flaw in the auditor’s opinion and in exercising his judgment.

 Finally Technology won’t save the shortcomings in your leadership.