Aon | Professional Services Practice
Release Date: April 2023
Accountants’ Liability Risk: Global Trends and Issues – Summary Highlights
Professional Services Practice at Aon’s Risk Management Information team’s annual Accountants’ Liability Risk: Global Trends and Issues provides insights into current global trends and risk issues facing the accounting industry.
Current observations of note in the risk environment include:
- Regulatory Activity – Regulatory oversight and enforcement have been heightened around the world, increasing the profession’s regulatory enforcement risk. Regulatory sanctions against firms and individuals have included some record fines. Allegations of misconduct and ethical lapses are on the rise. U.S. regulators have committed to step up enforcement of rules to police the profession. There has also been notable coverage of regulatory investigations in several jurisdictions, notably in the UK. Sanctions were issued to firms in Australia, Canada, China, Colombia, Germany, India, Italy, Kenya, Netherlands, Portugal, South Africa, South Korea, the United Arab Emirates, the UK and the U.S., among others.
Reputational Concerns – Professional service firms are mindful of the importance of protecting their brand and reputation. Reputational damage can result from the activities of clients, regulatory sanctions, civil litigation, employment and recruitment policies and other causes.
Recently, incidents of alleged governance failures and poor business practices have received noteworthy responses from governments and regulators. Ethics training has become a heightened focus for the firms. Client acceptance and continuance remain important.
Cybersecurity – Cybersecurity threats continued to be top-of-mind for business leaders. According to the Financial Crimes Enforcement Network (FinCEN)
of the U.S. Treasury Department, the conflict in Ukraine has given rise to an “unprecedented” increase in cyberattacks, while the
European Union Agency for Cybersecurity
has warned of increasing threats from a wider range of threat actors.
Regulators continued to actively develop and enforce data privacy laws. Significant resources were deployed by the profession to protect against data breaches and costly business interruptions.
Geopolitical Developments – The war in Ukraine disrupted the global economy, contributing to spiralling food and energy prices and high inflation. Professional service firms have navigated a successive array of economic sanctions targeting Russia and are largely prohibited from offering services to Russian companies. The conflict in Ukraine has also exacerbated lingering supply chain issues that emerged during the Covid pandemic.
Though geopolitical tensions between the U.S. and China persist, in December of 2022, the U.S. regulators received access to the audit work papers of U.S.-listed Chinese companies.
- Human Capital – Employers are facing numerous challenges and pressures in relation to their workforce. Organizations must navigate hybrid work environments, balance productivity against employee burnout, develop new compensation and recruitment strategies and manage a multi-generational workforce, all while delivering on meaningful ‘social’ initiatives (the ‘S’ in ESG).
Litigation Developments – The accounting profession faced high profile litigation in various jurisdictions in 2022, with claimed amounts reaching upwards of US$2 billion.
Developments in class actions and advancements in third party litigation funding are ongoing concerns. Collective actions could become more accessible to consumers in EU member states with the implementation of the EU’s Collective Redress Directive.
- Digital Disruption – Accounting firms are positioning themselves as technology innovators and enablers investing significantly in disruptive technologies including automation and artificial intelligence. The expected benefits include improvements in audit quality and the expansion of capabilities and service offerings. Growth in markets such as data analytics, the evolution of the metaverse and the technological disruption of capital markets are also contributing to the changing nature of the firms. However, technological innovation is not risk free – rapid development may outpace the recognition of evolving risks.
- Audit Reform – Efforts to improve audit quality and enhance requirements for auditors continue around the world. Revising and strengthening standards around audit quality and ethics and increasing regulatory powers are priorities in numerous countries, including Germany, Hong Kong, India, South Africa, the United Arab Emirates, the UK and the U.S. Of note is the May 2022 release of the UK’s Audit reform Bill, which is intended to address weaknesses in audit and corporate reporting.
- Environmental, Social and Governance (ESG) – ESG remains a key risk issue. Increased scrutiny by a wide range of stakeholders, including employees, investors, insurers, activists and governments has pressured organizations to identify and address their significant ESG exposures. These exposures – from reputational harm to negative financial impacts – are evolving and increasingly complex. Delaying an appropriate response could have negative consequenses. As firms market their ESG credentials and offer a wider array of services, there is increased risk of public scrutiny and concerns about how firms will be held accountable for their ESG practices; both emerging out of their own actions (or inactions) and those of their clients.
The wide range of factors that shape the risk landscape for accounting firms require continuous monitoring. Aon will provide ongoing analysis of significant developments.
The Professional Services Practice at Aon values your feedback. To discuss any of the topics raised in this article, please contact Audrey Jenner , Daniel Hacikyaner or Rona E. Davis.
Vice President and Director
Vice President and Director
Rona E. Davis
Senior Vice President and Executive Director