The regulatory environment
A series of high profile audit failures in the early 2000s triggered the eventual demise of self-regulation, as well as the rapid growth of independent oversight of the audit profession all over the world. This development was further accelerated by the global financial crisis that began in 2007, as policymakers and regulators moved to regulate every aspect of the economy deemed systemic.
The environment in which audit firms now operate is one of heightened regulation, constant external scrutiny, expanded transparency expectations and ever more detailed compliance obligations. The public expectations of many professionals, including auditors and tax advisers, remain at an all-time high. BDO firms are very conscious of the imperative to respond to this ‘brave new world’. As a future-focused organisation with exceptional client service as a key differentiator, BDO was in the vanguard of large global professional services providers in adapting to this ‘new normal’.
We confidently commit to perpetual investment in quality enhancement and to expansive transparency disclosure. Our firms and their clients have long realised that we have no option but to react, not only to fast-paced and incessant changes in the technologically-enabled environment that we now live in, but also to constant regulatory ones as the environment moves from legacy regulations and standards. In many cases these were written or conceived for a pre-digital age and now lag behind the sector or issues which they were meant to monitor.
This reality, added to the costs of compliance, the financial and reputational consequences of failure to comply and the sheer complexity and volume of regulation, continues to present us with a regulatory environment unlike anything previously experienced. The frequent misalignment and patchwork of regulations across the world continue to give rise to often conflicting and duplicative regulatory obligations. There is also little doubt that the regulatory environment faced by BDO firms and our clients is certainly the most complex ever and has a clear impact on day to day business. Not surprisingly, it is a priority issue for business leaders across the globe. Multiple studies have identified regulation and compliance obligations firmly at the top of risks and concerns faced by the leadership of all businesses, even ahead of such obvious risks as economic slowdown, catastrophic brand damage and cybersecurity threats. The expectations of the policymakers, regulators, oversight bodies and standard setters have developed rapidly and exponentially over the last 10 years and more of our service offerings are regulated in some sense than ever before. As the world becomes more converged and globalised, so too do the regulators who share practices, philosophies and results of inspections with each other. As a result, poor appraisal of a BDO service line or firm in one jurisdiction, has the potential to be globally damaging. To remain a successful global professional services organisation, we recognise the importance of positive and proactive engagement with all forms of regulators, across all of our service lines and geographies. Doing so is essential to continued success and realisation of our strategic objectives.
Since 2016, a new EU Audit Regulation has been in place, requiring revamped and enhanced transparency reports for audit firms with public interest entity audit clients. The new requirements are now impacting on BDO firms across the EU and beyond by subjecting auditors to additional surveillance and scrutiny from newly-formed and existing regulatory bodies who are coordinating activities and sharing information. At BDO, our firms have actively embraced the new requirements and frequently and proactively engage with global, regional and national regulators. As independent oversight of the audit profession is now universally accepted as the norm, we will continue to engage positively and constructively with the full range of historically relevant policymakers and regulators and are equally committed to doing so with the ‘new’ stakeholders in our evolving regulatory environment.
All of our firms strongly believe that greater transparency by individual audit firms and their global entities serves to build confidence in the audit profession and will enable firms to improve their credibility and reputation for integrity. Our regulatory and public policy experts’ frequent engagement with audit policymakers and regulators is evidence of our commitment to actively supporting efforts to develop focused, effective and added-value regulation. This in turn heightens trust in what we do and how we do it.