The Value Opposition

In 2017, ​I wrote about the "seller" pays conundrum that most SMPs face when they have clients that don't need or want an audit. Are there situations where assurance is desired? Yes; when you have shareholders that needs to be assured. And in such situations, they are the ones who would foot the bill.
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That is why the issue is less pronounced for the Big 4, who have the lion's share of such clients. But SMEs form the lion's share of most economies, and assurance is not particularly desired or needed when you have just one or two shareholders. And the SMPs would have the lion's share of such clients.

Audit exemption thresholds alleviates this to a certain extent; lesser companies would find themselves required by law to be audited. But an audit may still be required due to regulatory requirements, bank conditions for loans, supplier demands, or government conditions for grants. So in such situations, we are back to the same conundrum when statutory audits were mandatory across the board - those demanding the audit are not the ones paying for it.

If you're in a business selling a service to customers who don't want or need it but are made to pay for it, there is likely to be no value proposition for them. On the contrary, they would be quite opposed to whatever value you are trying to propose...and price.

To make the situation even more impossible for SMPs, recent changes to the auditing standards and the Accountant's Act require more work to be perform to increase audit quality. But who wants to pay for quality? This coupled with rising staff costs as a consequence to attracting talents, one can imagine the sense of impossibility a SMP practitioner face in doing this piece of business.

Even further raising the audit exemption threshold would not help as I believe the root cause is those who require the assurance is not paying for it. And in the entire industry, only the Public Accountant faces this. In tax compliance, clients need tax agents because they lack the expertise to prepare and file returns. In accounting services, businesses need proper bookkeeping for decision-making.

These systemic challenges also explain why fewer and fewer talents are choosing public accounting. While not all audit engagements are viewed as reluctant purchases, the continuing perception of audit as a compliance burden rather than a value-added service makes the profession less attractive...and less appreciated.

Making the ones who need the service pay for it should not be as radical as it seems. Pre Covid-19, I was told there were considerations to make this happen. I do hope it has not been totally abandoned now. Also, I was told there are already jurisdictions where this was already so.

Removing the opposition to the value of audit is critical as this service is deemed the pinnacle of the profession. And for SMPs, this is existential. How can we attract talented professionals to a service that clients view as a grudging compliance cost rather than a value-add? How can we maintain quality and professional standards when their compensation is constantly under pressure? 

The solution isn't complex. Those who require assurance - be it shareholders, banks, or regulatory bodies - should be the ones funding it. Until we make this shift, audit services by SMPs will remain stuck in a cycle of diminishing perceived value and increasing professional frustration.