The audit profession’s talent shortage issue has become more pronounced recently. The number of hired auditors in key roles has not kept up with the growing demand for professional audit services. The number of qualified graduates joining auditing has also dwindled. This article explains how recent high-profile audit partner allegations have affected the audit profession, using a local case as an example. It also proposes recommendations for improving talent retention.
Hyflux audit partner allegations against KPMG
Hyflux was a Singapore-based water treatment firm that filed for bankruptcy in 2018, and shut down in 2021. The company’s directors were charged in 2022 with disclosure-related offences and professional negligence.
Hyflux alleged that KPMG had been negligent in auditing their financial records between 2011 and 2017. KPMG refuted the allegations and argued that Hyflux’s statements attempted to assign blame for its internal shortcomings to an external party. More about the latest happenings on the KPMG and Hyflux audit episode can be learnt from local news reports.
Hyflux’s company failure can be attributed to two main internal reasons.
1. Diversification Without Adequate Consideration of Risks
Hyflux’s lack of foresight about the volatility of the energy market was a key factor in its failure. Hyflux was already in debt before Singapore’s wholesale energy prices decreased. It had not considered the possibility of drastic future price decreases when deciding to venture into supplying energy.
When Singapore wholesale energy prices dipped between 2014 and 2016, Tuaspring (a desalination plant run by Hyflux) had its earnings significantly affected. The project had failed to generate profit since it began operations due to persistently depressed wholesale energy prices. Tuaspring’s poor performance worsened Hyflux’s financial health.
2. Ambiguity in Financial Reporting
Hyflux’s accounting created ambiguity in its financial reporting. For instance, Hyflux reported its perpetual securities as equities, but a further examination of accounting standards raised doubts about whether these equities should have been classified as liabilities. Without clear and accurate financial information, KPMG’s auditors could not perform a clean audit.
Impact on the wider auditing profession
Recent high-profile company failures and audit partner allegations have increased global scrutiny and pressure on the auditing industry.
- Negative Public Opinion
Audit partner allegations create bad publicity and increase public distrust in audit work. The Hyflux and KPMG audit episode fuelled doubts about auditor integrity and professionalism. Hyflux’s company failure also eroded investors’ trust in audit decisions.
- More Regulations
Recent high-profile auditor allegations prompted many regulatory bodies to impose tighter restrictions on audit firms. The Singapore bourse tightened audit rules in 2021 after recent company scandals, including the KPMG and Hyflux episode.
More regulations and monitoring will create a complicated, tedious, time-consuming, and stressful audit process and work environment.
- Greater Pressure on Auditors
A study on auditors’ experiences and emotions regarding their self-identity at work revealed that many auditors experience high tension, anxiety, and stress daily. Ambiguous and unpredictable situations, high risks of error, and tight deadlines put extreme pressure on auditors.
Internalising blame for unsatisfactory audits can affect personal identity and self esteem. Some auditors may experience disillusionment and deteriorating morale.
Recommendations: How auditing companies can improve talent retention
- Hybrid Work
Remote work emerged as a viable option for auditors during and after the pandemic. 94% of accounting firms already provide hybrid work options, as shown in the results of Anytime, Anywhere Work (ATAWW), a survey conducted by Convergence Coaching
in 2022. Many employees prefer hybrid work as it offers them greater flexibility and comfort.
Hybrid audit work could involve remote meetings for planning and on-site client visits to build rapport and set expectations.
- Improved Remuneration and Benefits
Competitive salary packages are crucial for attracting and keeping talent. Recruitment expert Ms. M. Geetha, Director of Operations at Service Connections HR Consultancy Pte Ltd, advises organisations to adopt competitive remuneration, including benefits packages.
Apart from providing remuneration for overtime, they can further enhance work ethics and employee loyalty with time off to encourage retention, promote a culture of salary transparency to better manage employee expectations, and leverage automation technology to improve work efficiency and reduce burnout.
- Skill and Career Development
Accountancy and audit professions are constantly evolving, and firms must invest in upskilling opportunities to retain staff. Upskilling imparts relevant ethical decision making knowledge and fraud risk identification skills. This is especially important as new auditors must navigate a broader, more diverse, and digitally-connected world that demands versatility, adaptability, and moral sensitivity.
- Work Culture Reforms
The auditing profession needs a concerted effort by auditors to improve its public image, rebuild trust, and reform industry culture.
Research shows that the prevailing culture of blame and finger-pointing is counterproductive to preventing audit mistakes. Instead, audit firms and regulators should encourage a culture of quality by accepting mistakes and identifying root problems instead of finding culprits.
Conclusion
High-profile company failures and accompanying auditor allegations have created increased pressure, strict regulations, and deteriorating public confidence in audit work. These have worsened the industry’s talent retention issue.
Audit firms can retain talent despite prevailing challenges by implementing best practices, reforming work culture, and changing public opinion.
About the author
Ms M. Geetha, Director of Operations at Service Connections HR Consultancy Pte Ltd, is a recruitment expert with more than 30 years’ experience in the field of HR and outsourcing. Over the length of her career, she has gained a firm foothold in public sector recruitment, garnered an overnight recruitment drive of 123 customer service personnel, single handedly built up a HR department of a Singapore based offshore company, and spearheaded multiple government-based recruitment projects.
