Anne-Marie Henson:
Quality is a journey, and I like the use of that word because it just makes you understand that it's intertwined. It should be interweaved in what you do on a daily basis.
Narrator:
Welcome to Accounting for the Future, a BDO Canada podcast for financial leaders to navigate change and achieve business growth. We'll uncover the challenges financial leaders may not have dealt with yesterday, but will definitely have to manage for the future.
Anne-Marie Henson:
Hello and welcome to BDO Canada's Accounting for the Future. I'm Anne-Marie Henson and I have the pleasure of welcoming Nazia Lakhani, who has just recently taken a role as the Head of Audit Quality at BDO Global. Previously, she was the National Quality Leader for Assurance at BDO Canada, and I personally had the pleasure of working with her on a number of different initiatives over the years. Nazia, I'm so happy to have you back and to get the chance to talk to you today.
Nazia Lakhani:
Ann-Marie, I'm really, really happy to be back too. I love talking to you and I love having these discussions, so thank you for having me.
Anne-Marie Henson:
Awesome. Well, the feeling is mutual. Before we get started on our actual topic today, I wanted to just take the chance to ask you a little bit about your new role that you just recently started in July of 2023, so it's been a few months now. I understand that this is a brand new role that was created within BDO Global. So can you just tell us a little bit more about it?
Nazia Lakhani:
Yeah, so it is a new role and what's really interesting is that quality is such a spotlight that a role had to be created because of it. There's a lot of things that I want to accomplish as part of the role, but some of the bigger goals that I have is just to have a culture of quality to ensure that all firms are thinking about quality, that quality is a strategic decision for all BDO firms across the world, essentially. I also want to ensure that people complete audits efficiently and consistently, and people do things the BDO way. So I think it's a really, really important thing to achieve quality to have that consistency there.
The other item that's really, really in the spotlight right now is ethical behavior and ensuring that people are ethical in the things that they do, so we want to ensure that we promote that, and that's part of the culture as well too. So there's different things that I want to do as part of the role, but those are the goals that I have to ensure that it's done.
Anne-Marie Henson:
Oh, that's awesome. Well, with my experience that I've had with you in Canada, I'm sure that you'll be able to bring a lot of that experience and knowledge and focus on quality at the global scale, so I'm very confident in your ability to achieve those objectives.
Nazia Lakhani:
Thank you.
Anne-Marie Henson:
So I'm really looking forward to our discussion today on the importance of audit quality. Like you said, this is an issue that all of us, not just the firms or the people who are performing audits, but it's important for companies as well and their governance process to really have a focus on audit quality. I want to just point out to our listeners that BDO Canada now issues an annual audit quality report that we make public for everybody to read. So if you're interested in reading the details and seeing a little bit more of what's behind it, it's available on our website at bdo.ca.
In May of this year of 2023, we released our second annual audit quality report that we plan to continue releasing on an annual basis. So I know that this was a big part of one of the projects that you completed before your new role at BDO Global and that you had a big role to play in deciding what gets published and getting all that information gathered to issue the report. So can you just tell us a bit more about why BDO decided that making this information public was a really important thing to do?
Nazia Lakhani:
Yeah, so a lot of firms in different countries do have transparency reporting requirements. They actually have to report. In Canada, it's not a requirement, but we really did want to promote what BDO does, and we wanted the internal partners and staff in BDO Canada know about our commitment to quality, that we wanted to promote that culture. So that was one of the decisions to get it out because we thought if you make a public statement, they know about the commitment to quality. We also wanted to ensure that people knew that quality had to be ingrained in everything that they do and part of their day-to-day decisions. We wanted them to feel safe to raise quality issues and know that their issues are being listened to.
The other thing about making it an external commitment was that we wanted our clients to hear about our commitment to quality as well. They needed to know that the work that's being done behind the audit report adheres to the highest standards, and we also wanted to create that trust with them and that transparency with them.
Anne-Marie Henson:
I love that. As someone, like I mentioned, you and I have worked together quite a lot over the years and I've had a technical role helping a lot of our offices with assistance on quality and complexities in their audits, so I love the fact that we make this information public because it holds us accountable to something and makes us all feel like we're responsible for quality in our own way.
So on the one side, there's the importance of transparency. Like you mentioned, there are countries out there that have to provide this information. Canada doesn't necessarily have those rules yet. Who knows what happens in the future? The other side of that is we could be exposing ourselves to risk or we could be pointing out things that maybe we don't necessarily want to point out. So as someone who was responsible for deciding a lot of these things, what do we disclose, what do we make public, how do we gather information, how do you navigate that balance between being transparent and open, but also not providing too much information?
Nazia Lakhani:
So I do feel that our role as auditors is to promote quality and elevate our role in protecting investors and the public interest because that's really what auditors do. We're protecting the public interest. So as part of doing that, we need to be transparent and the public needs to know what we're doing because what they see is the audit report, and that's the only real deliverable. So they need to see what's behind that report. They need to know that we have partners and staff in our offices that are being properly trained. They need to know that people are consulting when there's complex issues. They need to see what the partner to staff ratio is.
So essentially, they need to see that transparency on what's behind the report, and they need to see what BDO represents, that we're doing quite a bit to ensure that the quality is there behind our audit report. So I actually think the risk of providing too much information is minimal. I do think we need to be transparent, and I do think that we need to say what we're doing because what we're doing is good things and we do need to show that to the public.
Anne-Marie Henson:
That's great. You know what? At the end of the day, I think the more information that we provide like this, the more transparency we provide, the more it elevates the work we do as well. Like you said, all the investors or stakeholders see at the end is a report with a signature on it, but there's so much more that goes into providing that report. So I definitely agree with that and I'm happy that we're able to provide that information.
So I do want to talk a little bit about the actual report and the contents of it for a second. I'm sure it was quite a task gathering all that information, deciding what elements should be included, and to what level they should be included. There's, I think, a couple of pages or statistics that surprised me a little bit when I was looking at this. One of them was about the diversity in our organization, whether it be by gender, race or orientation.
At first, I was a bit surprised because I thought, "Well, how would this impact audit quality?" but when you read into it, you understand the importance of diversity in a team in providing different thoughts and ideas actually helps to enhance audit quality. So I thought that was a really useful piece of information that I realized now has a big impact on quality and is something that we should continue to strive for. So I wanted to hear from you about what piece of information or what statistic that came out of the report surprised or impressed you the most?
Nazia Lakhani:
Yeah, so I completely agree with you that having a diverse team really helps make informed decisions. Anne-Marie, you and I have been on many late calls at night trying to make a call on something, on a complex situation and deciding what audit work or what evidence that we need to get, and having many people on that call and having diverse people on that call really helped because everybody had a different point of view, everybody had different things to contribute, and it really helped us all come to a very good informed decision.
So in terms of a surprising stat, I guess what really hit closer to me in terms of hitting closer to home was the fact that people who identify as females is 53% overall, but it drops at the partner level. So that part, it would be a stat that we'd like to increase going forward. I know even with my own partner journey, I chose to make my family and my kids a priority and balance my home and work life, and because of that, I was probably not promoted as fast as I would've liked to have been, but I do find that times have really changed and women are getting promoted while they're on maternity leave. They're being recognized when they're working from home. The flexibility is there. So I do think that stat will get better and better as time goes on.
Anne-Marie Henson:
Well, as a woman myself and a mom of young kids, I completely agree with you, and I think we could have a separate podcast episode just on women in the profession also, but I agree. I think being able to find a way to allow more women at the table at the partner level and find a way to balance that would be really great. Like you said, it does bring a diversity of thought to different aspects of quality that you wouldn't have otherwise.
Nazia Lakhani:
Yes, agreed.
Anne-Marie Henson:
So there was also, I noticed, a lot of discussions about some recent changes. The past couple of years have been really active from an assurance and a quality standards perspective. Maybe a bit more quiet on the accounting side, but definitely very active on that side of things. So one of those standards is the Canadian Standard on Quality management, so CSQM 1, which is a general quality standard that was developed in Canada, but it's in line with our international standards, so it is in line with what you would see in other countries. Could you tell us a bit about CSQM 1 and how it's impacted the way that firms monitor their own quality process?
Nazia Lakhani:
So CSQM 1 or ISQM 1, which is the international standard, it's a standard that makes firms take a very hard look at themselves and essentially rate themselves on a report card, and it's a report card that's public. So we talked about transparency before and talked about the fact that BDO Canada has an audit quality report and we talk about ourselves and the quality. CSQM 1 actually makes the firm do that and rate themselves. So there's different areas, different quality objectives such as governance and leadership, client acceptance, the resources that we have, ethical requirements, all those things have risks associated with them and firms need to take a look at what the risks are for the firm and look at the processes and controls they currently have to meet those objectives.
What's really, really great about CSQM 1 is that it provides a roadmap to areas that might require improvement. So where processes and controls might be weak, it allows you to look at those and remediate and add some additional steps. So CSQM 1 is not something that's one and done. It's a journey. It's a journey of continual improvement. What I really like is that it's brought quality to the spotlight, and that's where it should be.
Firm CEOs are actually signing off on their own system of quality management. They're the ones that are ultimately responsible. So it's a personal sign off and it's a personal commitment by them, and because they're doing that, the tone at the top is there. What I've seen across the world, actually, for other BDO firms is that I've seen a lot of investments that are being made in terms of quality, so investments in resources, getting the right technical people in, and investments on technology as well. So there's been a lot of very, very positive changes that have come from CSQM 1.
Anne-Marie Henson:
Yeah, no, that's really great and very interesting. I guess for myself as a partner who has assurance clients as well, I've definitely seen firsthand some of these changes that CSQM 1 has led to. What I've taken away for myself is that, like you said, quality is a journey. I like the use of that word because it just makes you understand that it's intertwined. It should be interweaved in what you do on a daily basis and not just a check once a year that you check off at the end of the year and then you're finished. What it's done, at least for myself, is I find that there's a lot more upfront planning and communication, both with the audit team internally, but also with our clients because they're as much part of this as we are.
So one of the things that I've started doing with a lot of my audit teams and my audit clients is developing a calendar that we can both adhere to and it highlights, "Okay. What's BDO responsible for? What is management responsible for? What are the timings?" We share it amongst ourselves. We share it with the client. We share it with their board and audit committee, so then everyone gets on the same page about the importance of making sure that we reach the right milestones throughout an audit. So I found that's been really helpful in terms of communicating expectations and deliverables, which obviously goes hand-in-hand with delivering good audit quality.
So if there are any CFOs or finance people that are maybe listening to this today, what could be one piece of advice you would give them relating to the importance of audit quality on the side of the company that might be audited?
Nazia Lakhani:
So quality is not just an audit firm issue. It's an issue for companies as well. They're getting an audit because stakeholders and lenders are relying on their financial statements. So CFOs really need to know what the changes are in the assurance standards, and they need to have conversations with their auditors on the audit team and what quality means to them as well. Companies have a duty to report fair and accurate results to stakeholders so they need to ensure that they have quality when they prepare financial statements, and auditors need to ensure quality when auditing the financial statements, so it's actually a journey that we need to take together.
Anne-Marie Henson:
Yeah, no, I like the use of that because it really is something that when we're engaged as auditors, there's a partnership that happens. So I think it's definitely to the benefit of everybody within that engagement to make sure that audit quality is at the forefront.
So outside of the audit firms and then the CFO or the finance function who tend to manage the audit process, there is a lot of discussions, and you mentioned it as well around proper governance, and that's both on the side of the audit firms and being properly governed, and you mentioned the importance even of the CEO being involved in some of these discussions and decisions. That could be the same on the side of a company that's subject to an audit. So if I am talking to a board member or someone who's sitting on the audit committee of a company, what do you think they could do to either support or enhance the quality of audits that they're overseeing in their roles?
Nazia Lakhani:
I think the biggest thing is to ask probing questions. They need to ask questions of the company, and they also need to ask questions of the auditors as well. So it needs to be probing questions on the quality process. The other thing that they need to keep in mind is sometimes when audits may take longer or there's delays, that's not always a bad thing. There might be complex issues that are being dealt with. So at that time too, they should be asking about those issues, asking what management is doing about them, what research management's doing, and then also talk about what evidence is being obtained by the auditor. So they need to be part of that journey, and they need to ensure that they're balancing what the management's responsibilities are and the auditor's responsibilities as well.
Anne-Marie Henson:
Yeah, no, I like that a lot. I know, Nazia, you and I have had some experience with public companies that have a formal and mostly independent board of directors and audit committee, but there are situations where private companies have that structure as well. I think the more the boards and the audit committees can discuss and have a regular cadence with the auditors, the better the audit quality will be. It's not about necessarily just talking through issues, but it's brainstorming together. Sometimes a board member or an audit committee member will add thoughts about the situation that management wouldn't have necessarily thought of.
So there's definitely an added value. Sometimes we want to resolve things amongst ourselves, but there's a real added value if you have a structure where you do have a board of directors that you can go to. With their experience, they might be able to add a lot of value to this process as well. So it's definitely a great idea to keep them informed and make them part of the process, right?
Nazia Lakhani:
Yes, completely agree and, of course, we always have to keep our independence hat on as well too. So they can be the mediators, they can be the people that go to management and push management to come up with proper positions, and then we're there to audit them.
Anne-Marie Henson:
Yeah, absolutely. I have one final question for you, Nazia. You mentioned it a little bit at the beginning in terms of your role and how you see it because it's new. It's a bit fun you get to pave the way and chart the course a little bit, but where do you see the next few years going in terms of this focus on audit quality?
Nazia Lakhani:
As I said before, it's a journey. It's not one and done. It's not that we'll just snap our fingers and everything will be, that quality will be there. Quality is there, but I do think it's that continuous improvement that we just need to ensure that it's always in the back of everybody's mind. There's always something where you can think about, "What can I do to improve this process and what can I do to make this even better?" because standards are not getting any easier and our work is not getting any easier. So we just need to think about those investments and what we need to do to ensure that everybody is being consistent in what they do and that we're able to achieve quality across the board.
Anne-Marie Henson:
I love that. Like I said, I'm sure you'll be achieving that very shortly in your new role, and I'm excited to see where this heads in the future. It's been really great for me as an audit partner to look at our audit quality reports and to be able to see how committed we are to continuous improvement to this transparency. It's really nice to see that level of engagement at all levels of the organization. So congratulations on the report, on what you've done so far. Obviously, your years at BDO Canada and this new role, it's really great. I'm happy for you.
Nazia Lakhani:
Thank you, Anne-Marie. Thank you so much for having me.
Anne-Marie Henson:
Of course. Well, I'd like to just thank you for your time today and your valuable input. I hope our audience appreciated this discussion. I'd also like to thank you, our listeners, for tuning in today and to all of our other episodes. I'm Anne-Marie Henson, and this has been BDO's Accounting for the Future. Please let us know if you found the topic interesting and useful, and remember to subscribe if you liked it. We'll see you next time.
Narrator:
Thank you for listening to BDO Canada's Accounting for the Future. Past episodes and related insights are available at www.bdo.ca/accountingforthefuture. Or you can go to Apple Podcasts, Spotify, or Google Podcasts to subscribe. For more information on BDO Canada, visit bdo.ca.