A gloomy economy, controversial initiatives aimed at reshaping the auditor’s role, increasing regulation, fierce competition and complex client needs are prompting the new CEO of Deloitte & Touche LLP to focus on how the firm can remain pre-eminent to clients in particular and the capital markets in general.
"There are a number of important changes that are having a dramatic impact on our profession," says Frank Vettese, who was elected managing partner and chief executive of Deloitte’s Canadian practice in June. "The push for globalization, a push for more regulation and the demand by clients for more integrated services aimed at solving complex problems are all raising the bar for our profession. We need to embrace those changes and respond to the different views being espoused about us."
Vettese takes Deloitte’s helm after serving as managing partner of the firm’s Canadian and global financial advisory practices, having achieved record growth in both areas. He joined Deloitte in 2002 and has been a member of the global executive team since 2007. Before that, Vettese launched a number of successful specialized accounting practices and became a recognized expert in valuations, forensics, transactions and accounting standards.
Despite the credentials, steering one of the Big Four accounting firms through today’s environment is beset with challenges, not the least of which has been the heavy scrutiny on how auditors are fulfilling their mandate in recent years. Both the U.S. Public Company Accounting Oversight Board and the Canadian Public Accountability Board have given failing grades to many of the audits they have inspected.
"This has had a significant impact on how the profession needs to deal with itself," Vettese says. "The boards have, for a number of years, been trying to figure out precisely what defines the right standard for quality in the audit profession. Both Deloitte specifically and the profession over all take very seriously the input we are getting. We do take audit quality very seriously. And the discussions we have had have produced a much higher level of engagement — engagement with the regulators, engagement with other constituencies about our responsibilities and engagement with audit committees. That has been to the good. We have been raising our game while, at the same time, the bar has been raised."
Meanwhile, the European Union and the PCAOB have been thinking about auditor term limits, mandatory rotation of auditors, major changes to the audit report and boosting the mandate of audit committees. For example, last year, the PCAOB proposed that audit reports should disclose the name of the engagement partner as well as the names of any other independent accounting firms and people participating in an audit. And the International Auditing and Assurance Board has just released proposals that would have auditors describe, in the audit report, issues that could affect users’ understanding of the audited financial statements, such as their views on the quality of internal controls, the models used to calculate the value of financial instruments and management’s use of the going concern assumption.
"These discussions about regulation and the future of the profession are really important issues that will have long-term implications," Vettese believes. "But it will be a healthy debate that, as a profession, will enable us to think about what is the true value proposition of what an audit brings. How can we use this discussion to truly engage in shaping what the auditor of the future will be and the kind of information that is most useful for users of financial statements and reports?"
Deloitte also is revamping its service mix to meet new client demands shaped by the financial crisis and the complexities of operating in a global environment. Vettese says there has always been a focus on the core businesses of audit and tax but, over the past decade, there has been a greater demand for financial advisory and enterprise risk services.
"What is starting to happen — and what will shape the next five to 10 years in a big way — is a much higher degree of service capabilities being community built and being delivered in a new way. Clients don’t necessarily ask for a particular service now. Instead, they say: ‘Here is a particular challenge, problem, opportunity that we’re facing, and we need an answer.’ We are increasingly developing our capabilities to operate in a more integrated way to deliver complete solutions."
Even an audit today is not just delivered by the audit practice, he explains. "Various services — whether valuation, risk evaluation, forensic capabilities — are now being brought to bear on an audit. The higher degree of complexity and expectations about what we can do is what is shaping our work today."
As an example, Vettese describes how he launched an integrated M&A practice across all of Deloitte’s service areas, "making sure that M&A had a full lifecycle, everything from looking at what a client’s strategy should be around M&A, identifying targets, screening those targets and doing the due diligence, right through to helping them with post-merger implementation. To put that capability together took various different service areas of the firm."
More recently, he was involved in setting up Deloitte’s global analytics practice. "The amount of data in the market is growing exponentially, regardless of what we deliver, whether a standard audit or a complex consulting engagement. More and more, we’re actually fuelling that work with advanced analytics capabilities. The market wants our insights gained from the various processes we are involved in. And I think that this will dramatically change the game for us."
As competition continues to heat up — especially in a challenged economy — firms need to be able to differentiate themselves from the others in the pack. For Deloitte, "innovation is critical for that purpose. We have to invest disproportionately in innovation, continually adapting to what the market needs, figuring out what new demands exist or might arise, and what new services and competencies can be developed to meet them."
Perhaps even more important is getting the unique talents for servicing the new client demands, "people that will help differentiate us as a successful firm — and that is a challenge," Vettese says, adding this is one of the drivers of the merger mania seen in Canada these days. "We are adding differentiated capabilities regularly, through mergers and non-traditional acquisitions. We are all doing this to be able to position ourselves as being able to provide the kind of expertise the market is looking for."
Vettese also plans to continue championing Deloitte’s strong focus on diversity. "We need to bring on people on board with diverse backgrounds — people who more appropriately reflect the diversity of the Canadian and global marketplace. Having people with different background coming together will help us do a much better job of understanding the needs of markets, clients and society and being able to respond to them."
He adds that one of his themes "will be to balance the needs for diversity in the people we bring into Deloitte and in the skill sets we are developing while, at the same time, driving a sense of collective action. To me, that is a critical element of our culture."
Looking ahead, he sees a world of opportunity for Deloitte, in both the traditional businesses and in the still emerging advisory services. "There is a fantastic opportunity for us, with our platform and our brand, to really get into areas where we are providing high-end advice to our clients on the things that matter most to them."