Putting ethical values at the heart of audit firm culture

Since the FRC first started to examine audit culture in 2018, there has been a shift from the questions of ‘what’ and ‘why’ – ‘what is a culture that promotes high quality audit and why is it important?’ – to considerations of ‘how’ to actually achieve this.

There is general agreement that culture is the purpose, values and expected behaviours that drive an organisation. So there is an expectation that an auditor’s behaviour – primarily their ability to effectively challenge and exercise professional scepticism – directly correlates to the foundations of a high quality audit. However, despite a clear understanding of what culture is and why it is important, the question remains: how to achieve this? This Collection of Perspectives is designed to provide an opportunity to share ideas and discuss what can be done to put these ideas into action.

This collection is divided into five key areas:

• Building an audit firm culture that supports high quality audit
• The role of the audit committee
• Developing a mindset of professional scepticism and challenge
• Embedding and measuring organisational culture
• Audit firm culture, audit quality and the role of the regulator

Building an audit firm culture that supports high quality audit

The recent reviews of the UK audit market, prompted by large corporate failures, have been clear that reform is needed to drive a mindset of professional scepticism and
challenge, with the benefits of a focus on culture stretching far beyond the delivery of high quality audit. Culture also plays a strong factor in the attractiveness of the
profession and the retention of talent, and is seen as a crucial element in restoring trust in audit.

Throughout the contributions in this collection, there is a clear consensus on the importance of a purpose-led culture and how an audit firm’s purpose should have audit
quality and maintaining trust in capital markets at its core. The contributors explore the characteristics of audit firm culture that support high quality audit highlighting that
expertise, independence and strong moral and ethical values should form the foundation of an audit firms’ culture.

The role of the audit committee

The audit committee is emphasised as having a critical role in audit firm culture, alongside auditors and management. Recommendations of specific actions for these
committees to take in order to identify and assess audit firm culture are made by the essays in chapter 2 of this collection, and demonstrate the importance of considering
culture on the same level as that of the audit itself and corporate reporting.
Developing a mindset of professional scepticism and challenge 
There is agreement across contributors that effective challenge of management is crucial to high-quality audit, and by extension the development of an environment in whichthere is support to do so constructively. This reflects the importance of buy-in from individual auditors and management – management must be open to challenges andauditors must feel comfortable in doing so. 
Embedding and measuring organisational culture 
While changing an organisation’s culture is widely recognised as one of the most difficult leadership tasks, these perspectives reiterate the importance of doing so to embedthese behaviours consistently across individual firms and the industry more widely. To succeed, culture must be aligned with business practices. The collection also considersthe difficult question of assessing and measuring culture, providing suggested approaches and useful indicators to examine. 
Audit firm culture, audit quality and the role of the regulator 
Of course, the role of the regulator is essential in promoting and monitoring culture. There are a number of suggestions made as to how the regulator should act, fromproactive assessment of culture by the regulator to setting minimum standards for firms to comply with. While there is a wide range of approaches in these essays, theimportance of regulator oversight is reflected in them all.This Collection of Perspectives is designed to encourage further thought on audit firm culture. It is not designed to be a set of rules but to encourage all market participants toconsider how good audit firm culture can be embedded into their own work and practice.   
Professor Chris Cowton authored chapter 1.1 of this report entitled ‘Putting ethical values at the heart of audit firm culture’, pp.10-11).