APPROACH to AUDIT QUALITY CEO Perspective Audit Quality and the Culture Connection
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APPROACH TO AUDIT QUALITY CEO Perspective Audit quality and the culture connection Over the past four years, BDO USA has experienced a period of phenomenal growth. In this short time, we have doubled in size, exceeding $1.29 billion in annual revenue, and gained more Securities and Exchange Commission (SEC) clients than any other public accounting firm. As part of this expansion strategy, we have added more than 2,400 partners and professionals. Yet, throughout this time, we’ve been careful to remember who we are and why we are here. Our firm’s core purpose is helping people thrive every day, acting in the public interest. We believe that when we help our people, our clients, and our communities to thrive, each of us individually — and BDO collectively — will succeed. Our commitment to this central purpose is evident in our culture, our values and our relationships, as well as in how we conduct our audit engagements. Public accounting firms serve a unique and valuable role in enhancing the integrity of the financial reporting systems that underpins the smooth functioning of the capital markets. Central to this role is a committed focus on audit quality. Audit quality is not measured at a specific point in time, nor is it the result of narrowly scoped initiatives. Rather, it is best demonstrated by a framework that encapsulates how we as a firm align attention to audit quality with the environments in which we conduct our audit engagements. In environments characterized by mounting complexity, audit quality requires a holistic perspective that encompasses the firm’s culture as a key driver. BDO’s approach to audit quality is rooted in the five pillars of our strategy that we refer to as CLIMB: Culture and unity, Leadership and accountability, Innovation, Market prominence and Best in class. These pillars, and our foundational values and purpose, direct the way we maintain and uphold audit quality—from shaping our tone, infrastructure, and actions to how we evaluate our success. In this report, we invite you to get to know BDO, as we share the insights that reflect our firm’s core values, people, and framework for embedding quality in all that we do. As we look toward the future of our firm and the evolving audit profession, we are confident that our commitment to our purpose and creating an environment where people thrive on excellence and doing the right things, are the keys to continuing to deliver quality audits to our clients. Wayne Berson Chief Executive Officer of BDO USA, LLP Chairman of the Global Board of BDO International Ltd. BDO’S APPROACH TO AUDIT QUALITY BDO Audit Quality Framework BDO’s approach to audit quality is captured in a contextual framework vation Busin nno ess & I En that is influenced by external y vir ilit on ab m factors including: in e a CULTURE & nt st u UNITY: u the business and regulatory S Learning & Professional environment in which we and our Development A c c clients operate BEST IN CLASS: o u Consultation, LEADERSHIP & C n o t i Supervision, ACCOUNTABILITY: m n u accounting and reporting complexities n g o Quality Control & p i Independence & l & t e i Monitoring Ethics t x R e i u oversight of those charged with t e p y p m o r governance o AUDIT t C i n g u expectations of investors and other QUALITY stakeholders BEST IN CLASS: INNOVATION: Engagement Audit I Performance & u n Methodology, market competition v Judgment e Tools & Policies s t t o n r e u innovation and sustainability needs s m & MARKET n S o that support capital markets PROMINENCE: ir h v a Growth, n re h E How our firm readies and positions our o Collaboration & ry ld Specialization to er la professionals to respond appropriately, s gu Re timely, and in a high-quality manner Corp to these external influences depends orate Governance on internal factors embodied in our CLIMB strategy. The following sections highlight how we are executing on each component of our CLIMB strategy within the framework of audit quality. 1 BDO’S APPROACH TO AUDIT QUALITY Culture and Unity Keys to recruiting, developing, and cultivating top talent Our people National Career Social CULTURE & are the most Conferences Learning Learning UNITY: important Learning & single factor in Professional our ability to Development provide quality BDO’S CONTINUOUS LEARNING MODEL professional services. When talented people come together, united Local Professional On by a common culture and purpose, and Office Development Meetings Demand supported by core values that reward excellence, the result is a high potential Figure 1 for success. In 2014, we named our first Chief People Officer (CPO) to emphasize Developing Our Professionals developments. We continue to invest in the importance of our people, bring about and enhance our training offerings with cultural integration across all aspects of the Continuous Learning Model and blended learning techniques, practical firm, and foster an environment where all BDO University case studies and scenario-based learning BDO partners and employees can thrive. We demonstrate our commitment modules that require staff to consider and Such activity begins with a focus on: to our professionals’ growth through address issues by applying professional u Recruiting and onboarding our Continuous Learning Model—our skepticism, judgment, and objectivity. We u Developing our professionals framework for learning and development. also participate in the American Institute u Assigning personnel to engagements This model encapsulates a level/role-based of Certified Public Accountants (AICPA) u Evaluating performance curriculum that offers both technical and Educational Management Exchange u Retaining and cultivating our next leadership skills training for professionals (EDMAX), a forum for sharing education generation of leaders throughout their careers. Delivered ideas and innovations with our peers and through BDO University (“BDOU”), integrating new concepts or approaches our training includes formal sessions into our Continuous Learning Model. Recruiting and Onboarding at national, regional, and local office locations, complemented by self-paced, We are growing our audit practice at all Learning and CPE Requirements on-demand learning, social learning (e.g., We monitor compliance with regulatory levels, adding professionals with vast on-the-job training), guidance on policies and firm continuing professional education industry, international, and specialty and procedures, and access to specialized (CPE) requirements. At a minimum, the service capabilities. technical knowledge (see Figure 1). firm requires each professional to: Our onboarding activities are designed Within the audit practice, the National u Participate in qualifying CPE programs to integrate new employees into the Audit & Accounting (A&A) Learning Team that result in at least 120 hours every fabric and culture of our firm, underscore continually monitors critical accounting, three years, but not less than 20 hours in expectations about living our core values, auditing, and financial reporting topics to each of the three years and introduce our methodologies and determine what needs to be incorporated u Comply with mandatory CPE for practices. Enhanced communications, into our content. Our National A&A regulatory and state licensing direct access to people and information, Learning online portal provides requirements and emphasis on relationships and personal professionals direct access to the firm’s u Comply with mandatory training as connections are also important aspects of technical training expectations, as well as determined by our National A&A leaders our onboarding process. We continually to self-directed courses and content. adapt new ideas and best practices, gained All professionals are responsible for keeping from our recent expansion experience, into The National A&A Learning Team up to date with the knowledge and skills our onboarding approach. regularly reviews our curriculum to align they need to carry out their assigned roles with professional competencies and beyond these minimum requirements. We 2 BDO’S APPROACH TO AUDIT QUALITY “Culture is the foundation on which our actions and decisions are based. When the culture is right, it helps us recruit, retain, and develop top talent to best serve our clients.” Tony Lawrence, Assurance Office Managing Partner , Grand Rapids, MI provide a growing library of mandatory, BDO ASSURANCE PRACTICE highly recommended, and suggested training modules covering auditing and 208 As of 6/30/2014 accounting, industry-specific issues, and PARTNERS 240 As of 12/31/2015 264 leadership and professional skills, along As of 6/30/2016 with other emerging areas that reflect the 98 evolving nature of our clients’ business DIRECTORS 142 166 environments. This gives professionals the flexibility to customize learning plans to fit SENIOR MANAGERS/ 388 460 their needs and level of development. MANAGERS 498 550 SENIORS 694 Assigning Personnel to Totals 743 Audit Engagements 1,874 630 2,310 STAFF 774 As of the end of 2016, our audit practice 2,590 919 constituted approximately 51% of the firm’s total professional staff of over ratio is approximately one to nine, which that supports our refreshed professional 5,000 employees. reflects the relatively high level of partner competencies and performance We staff our audit engagements to achieve involvement in client engagements. management expectations. the proper blend of technical skills, supervision, staff utilization, and on-the-job Evaluating Performance Retaining and Cultivating Our learning. For each engagement we consider: All professionals receive formal Next Generation of Leaders u Required knowledge of the client’s performance evaluations, engagement- Success and adaptability depend not only business and industry specific reviews, and counseling with career on recruiting and developing the most u Nature of the work to be performed, advisors and mentors in order to evaluate talented professionals, but also on creating including engagement size and their level of competence, monitor their an environment where they can thrive complexity development, and assist them in reaching personally and professionally.