Audit or advisory? A multidisciplinary approach is essential to the general interest

By Hervé Hélias, CEO and Chairman, Mazars Group and Olivier Lenel, Managing Director of Mazars in France

The topic of audit-advisory separation is back in our industry. Mazars has always put auditor independence and audit quality at the heart of its mission. As such, we believe that managing conflicts of interest between audit and advisory activities merits a thoughtful and nuanced solution. The complete separation of audit and advisory activities seems to be a radical, unnecessary and unrealistic approach that would hinder both financial and non-financial audit quality.

On the other hand, a multidisciplinary approach, i.e., the possibility of offering audit and advisory services, in compliance with regulations, has several benefits. For audited companies, it guarantees relevance and quality. For the market and general interest that our profession defends, it is a necessary condition for a sustainable auditing profession and for talent attraction.

The adoption of the Corporate Sustainability Reporting Directive (CSRD), which makes it mandatory in 2024 for many companies to provide assurance on ESG information they publish[1], requires expertise on highly technical subjects, such as biodiversity or environmental impact. This further reinforces the need for a seamless and ethical collaboration between experts in the field (who are familiar with the operational challenges of strategic decisions) and those who certify compliance for the same operations. In other words, while it is imperative that auditors should not certify advice they have provided, they must still be able to benefit from the knowledge and expertise necessary to perform their work.

We see four reasons to encourage the multidisciplinary nature of audit and advisory firms:

1. There is no quality audit without sectoral and functional expertise within the industry

Financial auditing alone, without any functional or sectoral expertise, is a theoretical – and ineffective – concept. The complexity of audits requires skills covering the company's entire value chain. A deep understanding of the market and the products and services provided by a company, and how this impacts its operations, is key to certifying accounts. This required expertise and specialisation is essential to analyse flows and decision-making and foster an informed judgement of the auditor signing off on the accounts. Separating auditors from expert advisors in various business areas, sectors and functions brings a risk  of undermining the quality of audit.

Audit firms need to complement auditors with specialists who possess specific skills, such as actuaries to audit pension plans or tax professionals for transfer pricing audits. All the experts who make up our staff have excellent training, a breadth of experience and a proven ability to navigate in environments that are often international, complex and highly specific.

Financial auditing will increasingly require the support of experts with specialised, diverse and even niche skill sets, such as: anti money laundering and terrorist financing or banking risk management specialists; artificial intelligence professionals capable of auditing sophisticated information systems with complex algorithms; web 3.0 specialists; computer scientists capable of identifying disastrous cyberattacks; or environmental experts that can verify certain companies' compliance with European and international regulations, such as the CSRD in Europe (which have upcoming and nearly simultaneous deadlines). In the short term, ESG audits alone will require numerous technical experts in data analysis driven by highly specific regulations (on biodiversity, environmental impact and more).

In essence, the multidisciplinary approach is ever-present: advisory is a close and valuable partner to auditing, and this partnership will only strengthen in the future. The combination of high-level professionals in these two lines of business within the same firm is a source of richness for both auditors and the audited companies. A multidisciplinary approach reinforces the audit team, which draws on the experience of its colleagues. Above all, it brings added value to the companies audited because it is precisely this access to a pool of specialists, capable of deciphering complex business issues, that allows for the high-quality audit analysis conducted by multidisciplinary firms.

Additionally, this cross-fertilisation allows consultants who work with non-audited companies on forward-looking topics, to anticipate the transformations their clients will need to undergo and therefore disseminate open-mindedness and innovation in their firms, which enables stronger practices. Conversely, the culture of quality and rigour that is so inherent in auditing provides advisory services with a seal of quality assurance.

2. No quality audits without quality talent

A multidisciplinary approach is key to retaining and attracting the best talent. The more competent and experienced audit specialists are, the more likely they will be interested in advisory services where they can solve the technical and complex problems of other companies. For example, in France, there is a good chance that an auditor who performs an excellent “Sapin II” audit will be highly competent on the subject matter. Other companies will seek the auditor's expertise outside of an audit mandate to help improve their “Sapin II” system. Why deprive companies of this advisory expertise if they are not clients of the firm or the firm is not involved in audit work with them? This knowledge sharing between the two professions guarantees talent retention. Depriving brilliant professionals of the chance to develop their experience, and limiting their contributions to a single profession, brings a risk of them leaving auditing for advisory activities.

Similarly, a firm's link between audit and advisory is a major asset in attracting young talent. Many talented people choose our industry based on this promise of a multidisciplinary profession. We offer a diverse experience that is intellectually stimulating over the long term, and rich in wide-ranging business opportunities that allow young talent to live varied professional lives. Recent graduates are seeking this diversity and shun monolithic career paths; it is the reason why multidisciplinary professions are essential to attracting this talent.

The stakes are high for firms: losing this multidisciplinary approach would accelerate young graduates' disenchantment with the auditing profession. Amid a talent shortage, this diminished attraction could lead to a potential auditor shortage and pose a major risk to organisations. This can already be seen in certain countries where there are not enough auditors to audit companies.

3.  From audit to advisory: the promise of continuity after auditor rotation

Today, an organisation can have its accounts certified by the same auditor for many years, up to 24 consecutive years in France, before having to implement a mandatory auditor rotation. Consequently, the auditor and the experts who accompany them will accumulate deep knowledge of the company, its operations, processes and markets. When the audit mandate ends, this knowledge capital is an exceptional asset for the company that seeks support on performance improvement or development projects, and teams leaving the audit mandate naturally become highly relevant advisors for operational or strategic issues. Such a long-term collaboration is an asset for companies.

This long-term collaboration provides both stability and company knowledge, so, if at the end of the audit mandate, the client wants to entrust the same firm with advisory work, there is much less of a learning curve.

Lastly, the more competent the experts in auditing teams are, the more likely it is that audited companies will call on them once the audit mandate is complete, to resolve issues that need to be addressed in the context of a long-term advisory assignment. Splitting these activities would deprive companies of the obvious benefits of a long-term collaboration that is full of uniquely valuable training and irreplaceable experience.

4.  An ethical multidisciplinary approach as part of a well-balanced strategy, serving the general interest

To guarantee auditor independence, without sacrificing the multidisciplinary approach essential to quality and talent attraction, certain solutions (if respected) can allow firms to perfectly manage conflicts of interest. Here are three guiding principles for an ethical balance between a multidisciplinary approach and independence:

1. First, compliance with independence rules must be enforced, and prevention and control systems must be built to exclude any risk of compromising the auditor's independence. This is crucial for any multidisciplinary strategy and a question of security for issuers and their audit committees. Solutions do exist, and we can take inspiration from international best practices. At Mazars, we favour an approach that clearly defines the "compatible" activities and specific assignments that an audit firm can provide to an audited business, in addition to the certification of accounts.

2. It is important to think about multidisciplinary approaches over time: the firm must define a strategy that guarantees a good balance between audit and advisory over the long term. As soon as there is an imbalance between these two major activities, it may be the beginning of a future split due to questions over governance and value sharing between activities. In an advisory market that is growing much faster than the audit market, it is critical to establish a two-tier action plan:

• Be selective in the types of advisory activities the firm wants to develop: it is not advisable to engage in areas that require volume strategies and that will naturally create imbalances. For example, activities that are intrinsically fraught with conflicts of interest should be avoided. Mazars has historically chosen to develop strong and coherent advisory expertise around financial auditing, which is our core business. We have capitalised on "non-conflicting" areas that are fundamentally useful to audit quality, such as regulatory compliance, internal control, risk management, banking and insurance regulations and anti-corruption. Over the last 10 years, our multidisciplinary approach has expanded significantly, as our clients' environments have changed. In this way, we remain ethical and our wide range of expertise has extended to include skills related to our core business.
• Accept the trade-offs that go with a mission of general interest: audit is a general interest business that needs competent and independent[2] auditors. In the current audit market – a market in which too few players can serve large international organisations – this mission of general interest must guide us. A multidisciplinary firm must be able to refrain from favouring consulting engagements that could leave businesses in need of competent and quality auditors. Mazars strongly feels a duty to serve large companies, regulated or not, that need an audit. This renewed commitment is the only way to grow the skills and capacity required to give the market the choice that organisations need. Maintaining the freedom to say yes to an audit mission requires a well-reasoned strategy for developing advisory activities. This principle of freedom and independence has always been in our culture since our foundation by Robert Mazars.

3. Lastly, a multidisciplinary approach must be seen as an integrated global strategy. If we believe that a multidisciplinary approach is essential to audit quality and the sustainability of the profession, we must stop strategically opposing two sides of the same coin. In other words, audit and advisory firms must stop pursuing two separate strategies that feed the idea of incompatibility, or even competition, between two objectives: protecting the general interest and maximising shareholder value. This view is counterproductive and likely to cripple our business. If we put the general interest (creating market, consumer and investor confidence) and the value we bring to our clients and the organisations we work with back at the centre, it is necessary to have an integrated, mutually supportive, seamless, transparent and ethical strategy in both audit and advisory.

In conclusion, Mazars promotes a multidisciplinary approach for the benefit of the general interest, the interest of the organisations we support and the health and sustainability of our profession. This multidisciplinary way of working is ethical when it is built on balanced logic.

Our desire and mission to remain a multidisciplinary player are intact, with an approach that makes us unique and aims to be sensible, controlled, balanced, responsible and consistent with our values. Passing on these values to future generations has underpinned Mazars for years.

Quality of audit and the general interest require a multidisciplinary approach: let's carry out the necessary reforms so that our profession can build on the momentum of a market in need of quality and quality auditors.

[1] The Corporate Sustainability Reporting Directive (CSRD), which modifies the current non-financial reporting requirements from the Non-Financial Reporting Directive (NFRD) was published on 16 December 2022. To find more: europa.eu

[2] In Europe: MFR & NAS

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