Anthony Marinelli:
So really, what is the company buying? It's the experience. It's an audit experience, and it's not only from the day the audit starts to the day the audit ends. It's also the post-audit experience from the day the audit ends to the day the next audit starts.
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.
Mary Mathews:
Hello and welcome to Accounting for the Future. Today is an exciting day for me to be here again, because I've been here on this podcast as a guest a few times, but actually today I get to be the host today and I'm doing a host takeover. I'm filling in for Anne-Marie Henson, our usual host, on Accounting for the Future. I've probably got some big shoes to fill, but I've learned from some of the best.
Another reason this is exciting is because we're actually recording this podcast live and in person for the first time on Accounting for the Future. And today I'm sat in our Oakville, Ontario offices and I'm joined by Anthony Marinelli. He came in from Montreal, and Anthony is our assurance leader for the east and also the chair of the board for BDO Canada. So thank you, Anthony, for coming in today and I'm really looking forward to our conversation.
Anthony Marinelli:
Thank you, Mary. It's great to be here and it's great to be in front of this audience here. Thank you for being here today. I'm a total rookie when it comes to this, so please be nice to me, but I'm looking forward to our discussion.
Mary Mathews:
Great. So Anthony, today I want to get into the topic of business leaders and really what's important to them when it comes to their auditors. I started my career as an auditor many moons ago. My role has slightly changed, but I do notice the dynamic and the relationships and the expectations have really changed between business leaders and their auditors, so let's start there. Can you tell us and our listeners tuning in how audit has really evolved over the years and maybe some of the key components that drive that relationship in an audit today?
Anthony Marinelli:
Yeah. Great question, Mary. And if you say you started many moons ago, I started many more moons ago. And you've seen it, you've absolutely seen the change in the landscape, and not even from when I started, even just from 10 years ago. I think the demands are very different on auditors and on accounting firms, and there's various reasons why. I think the GAAPs, the accounting policies and principles that we need to follow, have changed, have become more sophisticated. Industry specialization is also needed now. I think there was a time when we can go in and work on companies in multiple industries and really there was no issue, but that's not the case anymore. The regulations in each industry are becoming very specific to industries. The issues that impact companies are very specific to the industries they're in, so it's important as an auditor to have that industry specialization.
And also, our stakeholders are becoming more sophisticated. I just think about a lot of the users of our financial statements, whether it's the bankers, whether it's private equity firms, whether it's second generation now that are involved in the business that expect more out of a financial statement, so absolutely the landscape has changed. And what's interesting about change is that I know we think about change and we think of the change now and we say it's quicker than it's ever been. I was at a conference last week where they said something really interesting and it really makes you think. The pace of change now may be quicker than it ever was, but it's slower will be in the future. So I'll repeat that. It's quickest now than it's ever been, but it's slower than it will ever be in the future. So it is a fast-changing environment, and because of that, the specialization, the expertise, the deep understanding of an industry is critical to keep up with this change.
There's also different worldwide issues coming in, whether it's geopolitical issues across the world that impact our clients, AI. AI is a huge thing for our clients right now. ESG is big. So all this, what I'm trying to say is that the in-depth knowledge is critical today. Gone are the days where you could be a jack of all trades and maybe master of none back then. It worked 15 years ago, worked when I started, definitely worked. Not today. I think back to how it was when I started, even when I wrote my UFE exam, or CPA exam back then and all the handbooks fit in your backpack. You could bring them with you and review them and it was done, and not at all the case today.
So I think be careful of if somebody tells you that they can do everything and they know how to do everything. For me, that's a red flag. Maybe for this question I'll just end off with a famous Mark Twain saying that I always adhere to. It's, "The problem is not what we don't know, but what we know that ain't so." Really important to make sure we have that expertise.
Mary Mathews:
Right. That really lands, definitely in the audit profession. And something that stood out that you talked about is just the rapidity of the change coming, and information is at our fingertips and we've never had this kind of level of access to information and so we just have to keep up. That's table stakes. And I will say part of that rapid change comes in our regulators. Audit is a regulated industry, and with that in mind, it might give the impression, I'll say, or appear, with some emphasis, that maybe audit from one firm to the next is the same look and feel, that it's all the same between major firms. So maybe can you answer or tell us how a business leader, what they should look out for really when selecting an auditor? If we think beyond the GAAPs that you talked about or the industry knowledge, what are some things that they can think about?
Anthony Marinelli:
Yeah, really good question, Mary. And maybe I'll just touch quickly on the regulators themselves. And the regulators are more present in the assurance world right now, and with good reason. I think we've seen different accounting issues around the world. We've seen more litigation when it comes to accounting and the user of the financial statement has to be confident in the product that they're getting. So for me, that's a really big change in our industry. Now, that being said, I think once we got the technical expertise down and the quality is not an issue, you're absolutely right. There's many other things to think about. So when you think about an auditor's report, whether it's BDO who signs off on an auditor's report or someone else, the end product is essentially the same. Maybe the font is different, the signature at the bottom of the page is different, but the actual end product is the same. It's going to be the same audit opinion, whether it's BDO or someone else, in 95% of cases.
So it's not like any other product that consumers buy, whether it's a table. You want to buy a table, you go to the store, you look at the different models, you look at the different shapes, sizes, material, and you pick which one you like best. Same for if you're doing a renovation in your home. You make a decision based on what looks best and what feels best. That's not the case for an audit report. It's going to be the same product. So really, what is the company buying? It's the experience. It's that audit experience, and it's not only from the day the audit starts to the day the audit ends. It's also the post-audit experience from the day the audit ends to the day the next audit starts. So how do you determine if you think you'll have a good experience? I guess that's a really important question.
I think you have to think about certain things. Is the firm you're working with proactive? Have you heard stories where they've been helping their clients? Have your peers been telling you this? Do they have other service lines within their organization that can help you? Do they have a digital team? Do they have a strong tax team, international, indirect tax, et cetera? Look at the average size of their clients. Are they similar to your size of clients? Do they play in your industry? These are all questions that you should be asking when thinking of what auditor to work with. Also, ask them about their turnover. Ask them about their staff turnover to make sure that they are a firm that people want to work for and that you see a really good indication that the firm is someone you want to work with.
So it's all about the fit. It's all about the fit with the firm. Make sure that your partner introduces you to the manager, to the team that you'll be working with as well. That helps too in deciding whether you feel it's a good fit or not. So it's all about the relationship, because that's what will drive the ultimate experience.
Mary Mathews:
That's a really great way to actually frame that decision in terms of thinking about it. What's the experience going to be with the people? The other help that a company or business leader might need along the way, which you talked about with digital advisory or tax services, where you want to know that your auditors can come full-suite to the table with solutions and partner alongside you as you grow or are moving your business forward to the extent possible, obviously, as auditors. So that's all good to think about at first, so first step is done. You've selected an auditor based on all of these great things that you've talked about, but now there comes a time to actually build the relationship with experience and time. So with that in mind, what are some of the expectations for communication, for dialogue, for transparency that business leaders should look for or work alongside their auditors as well to build that successful relationship? What have you seen work?
Anthony Marinelli:
Yeah, and Mary, I think there's no one right answer here. Everyone's different. Every company has people with different personalities, and I think auditors have to adapt to the different personalities. But I think there are three key things that I think are critical when it comes to communication. Communication is the key for sure. The first one is transparency. I think you mentioned the word transparency. I think that's critical in any relationship, any relationship that you have. Forget about your auditor-company relationship.
But in this world, it's really important to be frank, to be able to give even bad news. And it works both ways. It's not just the auditor being frank with the company. It's vice versa as well, so that's critical. And when I think about transparency, there's a song in Italian that actually asks the question, "Do you want the truth? "Yes." "But which truth? The sincere one or the poetic one?" And I think sometimes when we were talking to companies, we try to walk on eggshells a little bit, try to be nice, and I don't think that works all the time. I think you need to be frank, and you need to be able to tell things as they are. And both ways. Both ways. So, transparency is one.
The second one is being proactive. And we hear a lot about the words proactive. And yes, we want to be able to tell the companies we work with right away when something changes that might impact them. But I'm not only talking about that proactiveness, I'm talking about proactiveness and setting expectations in making sure that when I'm dealing with a company, if I know that there's a section in their financial statement that might require more work or need more time, I'm upfront with that. I set the expectations upfront, and that's what I mean by proactive. It's to make sure we have an alignment of expectations. And again, this works both ways. It's not just me to the company, it's vice versa as well. So, transparency, proactive.
And the third key item I think is being supportive. Companies have ups and downs. I think we as auditors have to be supportive throughout those ups and downs, be there for them, have practical solutions for them when they have issues, and also be their ears to the world when we have experiences with multiple different companies in various industries. So if something we think might impact them, we need to support them and help them adapt to whatever change might be coming or whatever recommendation that we may have to make them a better company. So I think these three things help to build trust. And one important thing in any relationship, we may not always agree. There may be disagreements on certain things, but it's dealing with them professionally. And I think all that adds to the trust that's built.
Mary Mathews:
Yeah, I think even personally myself, I feel like trust is always built sometimes with the hard truths, the hard conversations where you can really tell that even though something may not be the best, what everyone wants, but it is the answer, let's say. I find that the frank discussions, the open transparency or collaborating to try to find the right solution always helps. And that trust is really built in some of those difficult scenarios, I'll say. And to your point on two-way communication, that's key. We have to listen to what business leaders are talking about, because inherently you'll find out what's important to them, what are their challenges, where are they trying to go? And by hearing them out, you'll be able to be a trusted partner along the ride and help them get there.
Anthony Marinelli:
For sure.
Mary Mathews:
Yeah. So switching gears, you did mention the word ESG, so I'd be remiss not to talk about ESG. So what do you see in terms of ESG requirements from business leaders? Either from their own strategy or maybe ESG-related information, what do business leaders need to think about and maybe expect from their auditors with respect to ESG?
Anthony Marinelli:
Yeah, ESG is a topic we get questions about all the time, and I think it's great. It's great that we're talking about it, and it's great that it's out there. And in Montreal, we've got the standard setters now there who are coming up with ESG regulations, and it's fantastic that we're at this point. I think businesses are starting to peel back the layers to see what their impact is on the world and in society. I am seeing a lot of major retailers, especially in the US and even in Canada, who are asking companies for ESG updates and health checks, and this is great. And what's really great about this is that regulations may not impact us right away. I know there are some new standards that are coming into effect over the next couple of years, but it's going to affect certain companies, not all of them.
But because of how important topic has become, everyone is talking about it already. We're not waiting until two years from now or 18 months from now. So I think that's great, and I think it's the same thing for BDO. At BDO, we realize we're part of an ecosystem. We work with a lot of companies, suppliers, customers who want to know about our ESG impact, and we want to be net-zero by 2050. And we have a great ESG report if you want to take a look at it on our website. But more importantly, we want to do what's right. Put aside the regulations, we want to do what's right for our society and for our world, so I'm really happy that this topic has taken the importance that it has at BDO and across the world.
Mary Mathews:
Yeah, completely agree there. We are part of that ecosystem, and BDO itself is part of that contributor to society. So actually, maybe we'll focus on that S and the G, some of the letters in ESG that don't get as much attention as the E. So switching to people, we're in a people business, and we talk about needing different voices, different perspectives, different expertise, and coming to the table together to solve problems or come up with a strategy to make the best decisions. So in that light, what do business leaders take from that or maybe expect from their auditors from a people and talent perspective?
Anthony Marinelli:
Yeah, it's a great question and I think I want to start off by making one statement. For us, our people are our most important asset, and it's non-negotiable. I'm in the assurance service line, as are you, as our many who are listening, but one of the campaigns we have right now is the Assured campaign. And a big focus in that Assured campaign is the development of our people. We know that if we work on developing our people to become better professionals, whether or not they end up staying at BDO or going to industry, that's a win-win for everyone. And happy people lead to happy clients. It starts with the happy people, and then it's-
Mary Mathews:
It's infectious.
Anthony Marinelli:
Yes, exactly. And I'm really proud about the turnover rate we have at BDO. It's lower than the industry standard, or better than the industry standards, I should say, and we're something that we're really proud of and I want to continue building on. I also want to talk about my role on the board at BDO. I'll put my board hat on for a second. And we talk a lot about the importance of diversity in the firm. Having diverse point of views, diverse thought. That's critical for us if we want to continue growing as a firm. We don't want a firm that's homogeneous in thought and has everyone's thinking the same way. We want to make sure we have that diversity so that we can hear different ideas. Everyone brings in a different viewpoint when they're coming up with their idea and it helps us grow. And I think us growing as a firm ultimately will help the companies we're working with.
Mary Mathews:
Yeah, it's so true. That investment in people is really the product. The experience comes from the people, and so that investment into people's talents, their skills is going to be critical to those business leaders who rely on people like us to provide advice along the way. So Anthony, I'm not going to let you get away from technical, just being who I am. So tell me maybe about how a business leader would know a firm is committed to technical excellence. How can they find that out?
Anthony Marinelli:
It's a really good question, and if you're out there networking and you ask an auditor or a partner and a firm or whoever, if you're good at quality, for sure, they're going to say they are, and they can do it. There's no question. So I think here's where you need to do a bit more digging. First, there's certain reports out there that are public that you can go take a look at. For example, there's the audit quality report. BDO publishes one. Many of the major firms do, so go take a look at those auto quality reports. It'll give you a bit of insight into how quality is treated at those firms. Also, talk to your referral sources. Talk to different bankers, talk to different lawyers. I think they'll all be able to share their experiences with different firms. I was actually with a banker yesterday and he told me that when he sees BDO on a statement, he knows he can rely on it. And when he sees some other firms, maybe not as much. So it's a question you can talk to your banker about and get their thoughts on it.
Regulators have reports as well out there, whether it's CPAP, PCAOB, they put out reports on quality standards in different firms. So those are certain ways, but also ask questions. The firm you might deal with. Ask them about how they deal with complex issues. Ask them about how they deal with finalization of financial statements. Ask them about their training programs, or L&D world, how do they deal with that? Also, consider whether or not they have a dedicated technical team that deals with technical issues. These are all questions that I think could help you assess how important quality is for a firm. And lastly, think about what places you've struggled with in the past, pain points you've had, and speak to the firm or your partner about that issue.
Mary Mathews:
Right. And understanding maybe or explaining some roadblocks or challenges in these processes, you can really get a feel for does that auditor or that firm really come with practical solutions to maybe some of these issues, not just the white and black technical answer. That can always be sometimes the hardest thing to implement or to take away from, so having someone who can think pragmatically as well, within the spirit of the standards. So being part of that role as an advisor or auditor is knowing what matters to a business leader, and that's beyond the accounting and the assurance. We're done with our technical, so thank you for playing ball. So what does an auditor do to actually adapt to the challenges, the opportunities, that present themselves today in the business environment?
Anthony Marinelli:
Yeah, Mary, I think it goes back to what we spoke to before a little bit, and I think it all starts with a deep understanding of the industry that the client is playing in because things change quickly. And without that deep understanding, you're going to have trouble following. And I just think of some examples here. Last year there was a new bill in Ontario, I think Bill 124, that had an impact on nurses and their compensation.
Now, in 2022, I may have been the best auditor when it came to hospitals, but if I was not up-to-date with the changes and wasn't proactive in dealing with this change, and not only waiting till the date I'm signing the financial statement, all of a sudden I am no longer the best auditor to be kind. And so this is a situation where because of the deep understanding we have of the industries, because we understand our clients' needs, and because we also have the technical team behind us who is doing this research and keeping us up to date. And more than just keeping us up to date, they're telling us how we can help the companies with these new rules. I think that's critical in ensuring that we always stay up-to-date and offer the best proactive service to our client and supportive service to our client.
Mary Mathews:
So it sounds like what you want from an auditor is to marry up that technical expertise, but someone who's in the real world, what's happening outside of our offices, to actually understand what might impact some of our clients. That's a great example with the nurses' compensation and how that affected, because yeah, it might be something that's happening at the government, but it affects our different companies in different ways. So keeping those in mind, I guess, is key. So I'll switch gears a little bit, and it's a bit back to rapid change, and part of that is technology. Can you tell us a little bit about what are the most exciting parts of innovation and change in technology and maybe how that might transform the traditional auditing practices that business leaders should think about or know about?
Anthony Marinelli:
First, Mary, I'm glad you used the word exciting because other people use different words when they talk about the change or the pace of change in this world. And I've heard the word anxious being used and very nervous about it, but it is exciting. It's exciting in the world we're moving towards. I think at BDO, we're already using various tools to help us in our audit process. In our client experience process. We use BDO Harmony. BDO Harmony helps us assess where there's potential risk when doing an audit, potential fraud risk, where we should be doing testing. So it's been a great tool for us, and this is only the start of it. We have other digital tools as well that we use that help make our audit more efficient, and these are changing rapidly as well, so that's really exciting. And also on the company side. So we have our internal tools that help us become more efficient, but we also have tools to help to enhance that company experience or the customer experience that I spoke about before.
I think whether it's making the onboarding process smoother, whether it's tracking of your tasks in a coordinated way, these tools are developed and being developed further as we speak, so this is great. And what's really great about this is that the standard setters also see the importance of having AI, so the rules are changing as to what we can and can't do with AI. But there's one thing I want to say. I think as great as AI tools are and as much as they help us, they'll never replace the human auditor. I think that's critical. That professional judgment, that professional skepticism, is still critical in any work that we do, so I just want to end off with that caveat.
Mary Mathews:
I'm glad you're ending with that, so that can alleviate some of those concerns or anxiety that you mentioned that might be with how rapid AI is coming forward. So, last question for you. As we look ahead, what are some of the steps that auditors are taking to provide value to companies beyond the numbers?
Anthony Marinelli:
Yeah, I love that. Value beyond the numbers. I think it starts with the numbers though. I think we have to make sure the numbers are right, and if the numbers are wrong, it really doesn't matter what happens after. So as long as we have the numbers right, that's table stakes. But the value after, it's everything I've spoken about so far. There are so many ways we can help ease in more than just doing the audit of their financial statements. I work with many business owners, many different boards, who will call me about variety of issues. I had one last week call me about proper governance under board. I had another one call me about some controls in their accounting team. And I think it's because we have so much experience with so many different companies out there, and we see so many different things that we can really be a valuable partner for the companies we work with.
And another example here, another bill that came in, Bill S211 was introduced last year, and it had to do with forced labor. It's amazing how many companies are not aware of the changes required by this bill. When I first started calling companies about it, many of them were very surprised by the way it impacted them. The reason I'm able to do this is because I have that technical team behind me. I have that experience with different companies, and I think that's critical, and that's the value beyond numbers I really think we can offer. So I think at BDO we're really lucky to have the different service lines, whether it's international tax, whether it's goods and services, whether it's a technology team. We have experts that can help us add value to companies we work with.
Mary Mathews:
Yeah. And just a point to add about that with that legislation, Bill S211, that was passed in Canada. Actually, thinking about it internationally is important too. Obviously we sit in Canada, we have a lot of cross-border activity, and a lot of those conversations I was having with different companies was management who's not in Canada, and they need to keep up with what's happening domestically. And there are several companies in some groups of companies where they're all over the world, so they're really going to rely on someone like an auditor who's domestic and can really bring that local flavor to their forefront. And that's beyond just legislation. It might be taxed with Pillar Two, the new global minimum tax that's coming up. So it's definitely part of maybe what business leaders look at when considering who they partner with as their auditors.
So Anthony, I'd like to thank you for coming in today from Montreal and for your valuable input today. I hope our audience today sitting with us in Oakville has also appreciated our discussion. I'd also like to thank our listeners for tuning in today and to all of our episodes. I'm Mary Mathews doing a host takeover today, and this has been BDO's Accounting for the Future. Please let us know if you found today's topic 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.