What follows are excerpts of the interview with the top three firms’ executives.
How does your firm keep its edge?
SGV Chair and Managing Partner J. Carlitos G. Cruz: Given our 71-year track record in the Philippines and the region, SGV understands that we should always stay ahead of the curve of the ever changing business environment while maintaining our values of integrity, excellence and accountability. In order to do this, we have to be able to spot and move beyond barriers that reduce our ability to engage, creatively solve problems, and continuously learn and perform on the job.
One of our core values is lifelong learning and we take this to heart by constantly updating our knowledge and skills, sharing valuable thought leadership on the market, industries, business developments and future trends that can help businesses forge ahead.
From quality client service to the personal and professional development of its people, SGV’s deep and abiding quest for excellence flows through the entire organization — and even beyond, as seen in the numerous professionals who have gone to serve as outstanding leaders in both the public and private sectors.
ILC Chair and Senior Partner Alexander B. Cabrera: It’s not about keeping the edge. It’s about keeping true to who we are as a firm and as a group of professionals. We strive to be excellent in our profession, but we are not just about our profession. That’s why we also stay close to the advocacies of our people and we look for different ways to express those advocacies and our people’s creativity.
The medium of expression can be intra-firm, or to the business community, or through social corporate responsibility projects. For example, we act as knowledge partner for different organizations and come up with unique publications that not only provide information but also amuse the readers.
RGM Chair and Chief Executive Officer-Designate Sharon G. Dayoan: We differentiate ourselves by keeping our clients at the center of our business coupled with strong evidence of our commitment to consistently observe professional standards and regulations. We make sure that we understand our clients’ business and growth ambitions to be able to deliver quality professional work and value added services to them. We do this by enhancing our expertise on high-growth sectors — building and sharing knowledge on these sectors across our audit, tax and advisory teams. Our affiliation with KPMG also ensures that resources to build our capability such as various Centers of Excellence and global leading practices and methodologies are accessible.
Technology also plays a big part in keeping our edge. In audit, for example, we have adopted Data & Analytics which has enabled us to test complete data populations and understand reasons behind outliers and anomalies thus providing a more efficient and value adding audit.
Lastly, and more importantly, we have not wavered in our focus on our people. Our people and training programs are top priorities and we regularly send our people to secondments and trainings abroad to hone them professionally and to bring over best practices.
What do you think are the reasons why companies have entrusted or have continued to entrust their financial reports to you? How do you take care of your clients?
Mr. Cruz: SGV has earned a reputation for excellence in serving the Philippines’ top companies. The depth and breadth of our organization provides us with the resources to meet a multitude of client needs. Our unparalleled services have been sought by emerging companies as well, making our client network stronger and more diverse. It is our goal to not only provide top-quality audit services, but to also become a trusted business advisor for our clients.
All our services are designed to address every client’s particular needs. A key element of the firm’s process is our focus on the business itself on top of the financial aspects of a business’ operations. SGV’s emphasis has always been on selecting and developing the very best people because the competence, care, and commitment of the individuals who perform the audit make the real difference in the quality of our service.
SGV has in place a Quality Management System to ensure quality in the delivery of its services and compliance with local and global professional standards. In our work, we recognize our responsibility not only to our clients but also to a broader group of stakeholders who rely on our work such as investors, financial lending institutions, the profession, the government, and the public in general.
Mr. Cabrera: Firstly, we need to stay agile, even as we take care of our clients’ and our firm’s reputation. If that reputation is protected, the co-branding that you’ve established with the client is also protected. Our reputation over the firm’s 95 years of existence is built with integrity at its core. Agility requires us to really understand, solve not only the inquiries that our clients put forward but to solve their business issues. We focus on the business issue behind the problem, not only the surface of the problem.
The financial reports are just some of the things that they entrust to us. The firm is so much more than the audit or assurance. The firm is about taxation planning, business consulting, a lot of IT-related services, deals assistance and corporate finance, and data analytics. Nowadays, it’s really more than just the financial report. It’s how you maximize that financial report and other data outside the report to your advantage.
Ms. Dayoan: Trust is not earned overnight. We believe that our commitment to quality and excellent service are the main reasons why we have become over time a trusted auditor and advisor.
We take care of our clients in many ways possible. We invest in infrastructure and hire highly talented people for our clients. We evolve, innovate and access technological and technical solutions that are responsive to their current issues and challenges. We ensure that our level of engagement that we have with them allows working shoulder-to-shoulder for more upfront and frequent discussions on issues. We don’t stop thinking on how to further improve our services.
How was the competition in the auditing industry last year?
Mr. Cruz: Competition, as always, has been brisk and challenging. We welcome this, because we believe that the rise of the competition from audit firms is an excellent indicator of the sound fundamentals of the Philippine economy. This pushes us to provide better services for our clients, which, in the long run, can translate into a stronger business community for the country. In the end, the clients will always benefit from a highly competitive, increasingly competent professional services industry.
Mr. Cabrera: I would say that the competition sometimes engages in a race to the bottom. We are very careful in proposing this way because we are not working around the fee that was set but rather what really needed to be done. In our case, regardless of the fee that we propose, we need to come up with quality work that is required. We don’t take any shortcuts — you can blame us for that — but that is also how we have protected our reputation.
Ms. Dayoan: The competition in the auditing industry has been steadily increasing given the demands of the business sector and regulatory charges. The local regulators are increasing focus on audit practices and stepping up their efforts to be in line with what the members of the IFIAR are doing. A lot is also happening outside the Philippines. The audit firm rotation in EU has caught on. There are some global companies who voluntarily adopted the same policy. Accordingly, a number of global tenders have been made and this affects the local industry as well. The impact can go both ways for the local players.
Last year, what were the challenges you faced in auditing companies’ financial reports? How were you able to cope with those challenges?
Mr. Cruz: Digitalization and globalization, coupled with more complex accounting standards, have made business transactions, processes and eventually the preparation of companies’ financial statements and other reports more complex. We were able to address these through the application of our audit methodology and risk management processes, utilizing the strength and resources of our global network, and supported by rigorous training for our people with an increased emphasis on professional scepticism and quality service delivery.
Mr. Cabrera: I think the challenge would be — not for us in particular but for the entire industry in general — is the expectation of the companies. Somehow, they’re bordering on the expectation that you will catch fraudulent transactions and this is actually a challenge for all auditing firms because the inherent limitation of audit is fraud and collusion. You need a special kind of audit — the forensic audit — in order to uncover fraud and collusion inside the company. Clients have some expectation that you will catch fraud happening. That’s very challenging for an auditing firm especially if the scope is not for that purpose. I think that’s a problem not only for us but for the entire industry, these changing expectations. This is even made more difficult by the fact that sometimes the
audit firms race to the bottom as far as fees are concerned. It is more difficult for the fee not to impact the resources you will devote.
We grow our clients to the extent that we can still give them our personal attention because that is what clients like about us: that we’re able to engage them in a more personal manner and we need to be present when they need to see us.
Coming up with more efficient ways of working is also important. The rest of it is just really living with these realities. We try to educate our clients about the value that we bring. If clients value those things that we can provide, then they would also appreciate that it is really value for money that they’re getting.
Ms. Dayoan: Last year was the first time that a discussion of Key Audit Matters (KAM) is required to be included in the audit report on financial statements of companies with publicly traded shares. KAM are matters, which in the auditor’s judgement, were considered significant in the audit of the current period financial statements.
Although this was implemented in 2016, we have been preparing for this much earlier. In 2014, our partners and teams already started discussions about this with our clients. Then in 2015, we presented customized draft KAM to our clients’ Board of Directors and/or Audit Committees (ACs) to give them an opportunity to see, much earlier, how KAM will look like, what matters are discussed and address any concerns that they may have had with this requirement of the Philippine Standards on Auditing at least a year before implementation. This has allowed better communication with by the Board and ACs when the KAM discussion was made mandatory in the 2016 audit reports. Internally, the firm designated a committee of experienced partners that was tasked to review the KAMs drafted by audit teams to ensure consistency of compliance with the requirements and with leading benchmarks.
