Over recent years technology has enabled financial markets to become more accessible than ever before and at the same time has led to complexity on a scale previously unseen.
The basic need of investors for reliable information they can understand is both underscored and challenged in this environment - a challenge that recalls the roots of the accounting and auditing profession, while compelling it toward evolution.
A strong audit and assurance profession is at the heart of advanced economies. Like other professions, we are committed to continuous improvement. It is equally important that regulators work in collaboration with the audit profession to deliver wide improvements.
Increasingly interconnected markets combined with heightened volatility mean shocks can reverberate quickly and powerfully around the globe. Investor confidence, hard-earned, can be easily shaken. These effects have been dramatically illustrated in the global market ructions over the past few years.
It has also become easier and faster in many instances to set up online and start trading international shares, foreign exchange or complex derivatives than it is to open a savings account down at the local bank branch. Growth in the retirement fund industry, share ownership and trading on both sides of the Tasman mean more everyday wage and salary earners, as well as self-funded retirees, have an exposure to the vagaries of the markets than has ever been the case in the past.
How then, in a world of information overload, can critical business information be rendered accessible to a broadening range of stakeholders with various levels of financial and investor literacy? A study by the University of Berkeley California found the amount of new information stored electronically each year would fill 37,000 new libraries the size of the US Library of Congress if stored in hard copy - roughly equivalent to every word ever spoken by humans.
Credible corporate reporting is central to market confidence. The quality of information becomes paramount. There's a risk that key details can be lost amid the noise. Corporate reporting must evolve in order to comprehensively and cohesively express complex business models, risk and performance in a manner which can be easily understood by a diverse stakeholder group.
The challenges involved in corporate reporting for today's capital markets are as much, if not more, of an issue for the auditing profession as for those preparing reports. To fully address confidence, there is no way around some form of independent assurance. This might look quite different to the assurance of today's financial statement audits, but it is just as much grounded in the roots of the audit profession - an independent, trustworthy and competent view on how reliably current or prospective investors can take the information put before them.
A significant part of the challenge is the existence of an expectation gap - or a disconnect - between what investors, both expert and non-expert, see as the role of audit and what it actually is. This gap must be bridged from both sides: investor education playing a part, along with the auditing profession's engagement in an evolution toward meeting the different expectations and needs of a rapidly changing world.
On the first front, CPA Australia recently issued A guide to understanding audit and assurance - a plain English, straightforward depiction of auditing and assurance aimed at helping investors of varying backgrounds to gain a better understanding. Feedback internationally has demonstrated the value of even such a straightforward resource in addressing this complex set of issues.
The accounting profession globally is also committed to the objective of meeting changed expectations and working towards paradigm shifts such as integrated reporting - cohesively reporting on business models, risks and their impact on society in an understandable way. Representing CPA Australia, I sit on the International Integrated Reporting Council in London.
CPA Australia recently hosted the launch of the draft international Integrated Reporting framework for consultation.
A number of New Zealand government initiatives over recent years can be credited with recognising the importance of a globally connected accounting and auditing profession in meeting the challenges ahead. Major steps toward opening the profession to greater international backing have been made.
In its capacity as an accredited licensing body for auditors in New Zealand, CPA Australia is committed to drawing on its global reach and more than 125 years of experience to make lasting positive contributions for the New Zealand profession, and for the wider community.
Growth in capital markets present a shifting environment and a set of challenges with implications for New Zealand's ongoing international competitiveness that cannot be overstated and must be met head-on. The auditing profession will be integral to achieving this.
As an organisation, we will continue to support the accounting profession in delivering effectively on its crucial role in society.
Alex Malley FCPA is chief executive of CPA Australia