Lessons from Auditors' Engagements with Indigenous Communities
Diversity is an increasingly important consideration for the accounting profession. CPAs can no longer afford to keep their head in the books—collaborating effectively across cultures is a core requirement of the job.
For audit firms working with First Nations communities this challenge can be particularly pointed.
First Nations communities must publish consolidated financial reports annually, in a process designed to ensure transparency and accountability to their members. Yet, a new study questions the role audit firms play in this.
Key takeaways from the paper
Relationship-building, training needed if auditors are to provide full value
Many First Nations communities fail to see value in the financial reporting process and are consequently disengaged. The study’s authors suggest that neither the audit firms nor Aboriginal Affairs and Northern Development Canada have invested sufficiently in training and capacity building for First Nations Communities.
As a result of community disengagement with the audit process, some First Nations communities rely heavily on auditors to produce their financial statements, in some cases decades into their relationships with audit firms. This often leaves auditors in the difficult position of having to both produce and audit the same statements, a practice that not only undermines the auditors' independence but also exposes the profound lack of meaning and adequacy of financial reporting requirements on Indigenous communities.
Cross-cultural adaptability needed to counter audit biases
For the auditors involved, most are curious and open-minded at the beginning of an engagement, but fatigue, tension, and a lack of mutual understanding often lead them to adopt a more relaxed and casual attitude as the engagement progresses.
These behavioural adjustments might reflect an auditors’ conscious or unconscious bias, revealing a preconceived or stereotyped understanding of First Nations culture. But the process can also be positive, when auditors change their behaviour to bridge the cultural chasm. “This ‘cross-cultural adaptability’ is a valuable skill for auditors working across cultures,” says Associate Professor Bernard Malsch, Director of the CPA Centre for Governance and Accountability and one of the study's authors.
The study proposes three steps to improve the quality of auditors’ engagements with First Nations communities.
- Training: Audit firms should offer cultural awareness training to ensure teams correctly understand the Indigenous environment.
- Legislation: Government should revise policies to acknowledge the lack of financial and accounting expertise within First Nations communities.
- Cultural awareness: Responsible policymakers must properly recognize various forms of accountability, reflecting First Nations traditions.