Speaking recently to the Business Post, Mark Kennedy Managing Partner of Mazars in Ireland discussed the future of audit and key considerations for businesses across all sectors.
Detailed below is the interview with Mark, which can also be read here
The managing partner knows the history of Mazars Ireland but has strong opinions on the future of accountancy in Ireland, including the importance of joint audits of companies For an accountant, Mark Kennedy’s deep historical knowledge is conspicuous. “Mazars dates from just after the Second World War, which in accountancy firm terms, is not that old,” the managing partner of the company’s Irish presence tells the Business Post.
“Mazars is a French family name, and Robert Mazars started it in Rouen in the north of France and it grew from there. He only passed away a few years ago in his 90s. He led the firm up to the 1980s and then retired relatively early. The subsequent generation then expanded it from France to the global accountancy business it is today.”
Kennedy’s interest in history is not confined to the annals of Mazars. It dates back to his teenage years, when he strongly considered going into academia, before opting instead for chartered accountancy training.
It was a fork-in-the-road moment that defined his own history and has led him to the senior ranks of one of the fastest-growing accountancy firms in the world.
“Accountancy training has always brought a fundamental understanding of how business works. It doesn’t really matter what you specialise in, the broad-based training that we are given is really strong,” he says.
“In different walks of life, there are different fundamentals. Engineers tend to be very good at systems and how things work together. Well-trained accountants tend to be very good at how businesses function from the bottom up.”
Mazars may not be as recognisable as the “Big Four” accountancy firms – KPMG, EY, PwC and Deloitte – but it is rapidly expanding its global footprint. In Ireland it has made significant inroads in recent years, targeting the fast-growing financial services sector and capitalising on regulatory changes that have created more competition in the audit market.
Kennedy joined the company in 1994, when it was still a small but respected player in the Irish audit scene.
“Over the years, I started to work in different areas. I would have spent time working in internal audit, and then a period in forensics. I did a couple of years working almost exclusively for government inquiries. I was part of the team that supported the Public Accounts Committee in the Dirt inquiry in 2000. I worked in a few other public inquiries after that, including the Ryan Commission into institutional child abuse, where we dealt with some of the financial aspects on behalf of the commission,” he says.
Having gathered significant experience across the firm, Kennedy became a partner in in 2004, joined the Irish executive team in 2009 and became managing partner in Ireland in 2015.
Early last year as the pandemic took hold, Mazars’ business in Ireland was affected, and as a result it didn’t have the financial year it planned.
“But then as the year went on, business was better than we had feared,” Kennedy says.
“We have now started 2021 quite optimistically, actually. We have learned how to deal with this environment and we are in reasonably good shape. If the economic fortunes of Ireland continue to go reasonably well, I think we will be nicely positioned to take advantage of that.”
As a professional services firm up to speed with the commercial health of its clients, Mazars has a unique perspective on the impact of the pandemic on the economy and Kennedy says that many firms have shown their resilience.
“As an auditor, the question you are asking is how long that is going to be the case. There is a certain amount of commentary in the marketplace about how companies may be in a lot of difficulty after Covid-19 when state aids are removed.
“I would say that we have generally seen clients adapt well. There are certain sectors that have been more challenged. What I hope is that from a policy perspective the government and the EU would take a longer-term view of easing off on these supports so they allow businesses a bit of breathing room to get back.”
Kennedy believes there will be widespread restructuring in the aftermath of Covid-19, with many businesses having to adapt to a “fundamentally changed landscape”.
“I don’t see people returning to working in the same way in the next year or two. I think it will be more of a managed transition. We have a number of clients in the retail space, for example, who very successfully adapted to an online model and invested heavily in that. The research tells us that customers tend not to shift back even if the real world model remains. I think there will be long-term changes there.
Kennedy breaks the company down into four main divisions. First is the audit element, which represents about 40 per cent of the business. Then there is the consultancy side, which represents about 15 per cent and ranges across sectors.
Financial advisory is another 15 per cent and then the rest is made up with tax services and outsourced accountancy services.
“If I was to give a snapshot of the last few years for Ireland, I would say that the market here has been very much dominated by the big four. We realised back in 2013 that the audit reform agenda the European Commission was pursuing, which became law in 2016, was going to change the marketplace. We started to invest heavily in developing stronger audit teams at that stage, and it has been the big driver of our growth in the last few years.”
In 2016, new European rules around auditing were transposed into Irish law. They meant that certain public interest firms were now mandated to rotate their auditor every ten years. For Mazars, as one of the smaller firms in the market, this presented a major opportunity.
“What drove the growth in our audit business was the ten-year rotation, and there wouldn’t have been a tradition of rotation in the larger corporate segments. That meant there was going to be more competition for the audit position. It opened up the market for firms like Mazars,” he says.
“From an international group perspective, that will continue. Ireland was one of the fastest adopters of the strict ten-year rotation, but other countries are following.”
Kennedy also believes change is on the way for the audit profession. Following several high-profile corporate scandals that have put a spotlight on the questionable quality of audits, from the now defunct Wirecard to the collapse of Carillion in Britain, British regulators have ordered big accountancy firms to separate out their audit and consultancy businesses to ensure independence.
“I believe the purpose of an audit is to have somebody standing in the shoes of the public interest,” Kennedy says. “A hundred years ago, that was primarily about shareholders, and we define public interest much more broadly now, but that is what we are about. Anybody who has been in auditing for as long as I have would admit that there is a need to consider the scope of some of what we are doing.
“There have been a lot of suggestions around things like promoting independence by splitting firms or maybe having market caps. There’s good and bad to those suggestions. Let’s take the point of splitting firms. In the larger corporate market you can’t audit without specialists who are not auditors. If you take the health sector, you shouldn’t have an audit team that doesn’t have somebody who is a health expert in it, if that is a sector you’re doing a lot of work in.”
Kennedy says the debate now has moved on to the role of auditors in relation to fraud, or the role of auditors in relation to going concerns and whether they should take a more forward looking view of how companies are performing. He agrees that these are all issues that should be examined, but that solutions already exist to ensure high-quality audits.
“I think we have ignored one solution over the years which is really quite obvious to me. That is joint audit.”
Joint audit is when two auditors carry out an audit of a company together, thus sharing the responsibility and the workload.
“It gives you a solution to some of those issues of independence and gives you more choice and diversity in the market. It isn’t as challenging maybe as some of the remedies that have been put out there,” he says.
Kennedy also believes his profession has to prepare for changes relating to environmental, social and governance issues (ESG). He says a confluence of commercial, cultural and regulatory changes are shifting people’s expectations of what they want from companies, and as a result, what auditors should be assessing.
“It is the old adage ‘What you measure you manage’,” he says.
“That is one area we have been looking at very closely and saying there will be a role for accountants, whether within businesses or as auditors or as a special consultancy role. Already in France, Spain and Italy there is mandatory reporting on some of these ESG issues in a way that is more comprehensive than Ireland.
“The other things are just the commercial brass tacks. In addition to the consumer and employee side, almost all European funding over the next ten years is going to be tied against certain indicators which will be benchmarked against ESG considerations.
“For a firm like Mazars, we will play a role on the reporting side, but our consulting teams are also looking at issues around how you measure carbon emissions and how you measure other indicators. It will increasingly be a part of our business.”
It is clear that as well as a keen interest in the past, Kennedy is focused on the future and what role Mazars will play in it.
“About 25-30 years ago, when I started, the scale and complexity of what companies did was vastly different from today, where new technologies and globalisation have now transformed their role. So it is appropriate for the profession to reflect on that and figure out how to do our job better in that context.”
In his own words: ‘My greatest lesson in business’
Despite the perception of accountants and auditors as being all about the numbers, I think that the most important lesson I have learned over the years is that it is really all about people and communication.
As a trainee, I was taught that a set of accounts needs to be relatable to the human activity that drives the business – and auditors need to understand this in order to do their job well. As one of the managers who trained me used to put it, “you need to be able to see the factory floor in the financial reports”. When we consider the complexity of the modern business world, the impact of emerging new technologies and globalisation, clearly seeing the human activity can be even more of a challenge.
While technology, for example, is certainly changing how we work and interact, human intellect, relationships and the ability to communicate clearly are still essential. If we do not manage those aspects of engagement well, the benefits of technology within the business environment can be lost.
As we look toward an era where change – whether it be technological, environmental or social – will be significant, making sure that we keep a people-centred bias in education and training is very important.
This article first appeared in The Business Post on the 31st January 2021.