We consider highlight that the sustainability of the audit profession matter, based on our cultural ambition. Disruptive technology is shaping the audit of the future and we are ready for the next five years development phase. Our leaders of Audit & Assurance business are on this track. We consider that the sustainability of the audit profession is paramount for several reasons, mainly stressing the four characteristics of auditing – quality, trust, resilience, and agility. We treat all of them as essential pillars of modern auditing.

1. Quality: Quality refers to the standard of excellence based on the ISQC1 and in 2024 we are moving towards the voluntary  implementation of the ISQM1. Our a purpose-led culture and business structure is driving quality, and investments in culture, ESG (Environmental, Social, and Governance), and digital technology are contributing to these efforts. Our transparency report 2023 is helping you to understand the investments being made in governance, controls, and processes, and seeking insights from leadership reflections on the past year 2023, the future outlook 2024, and the organization's focus on the public interest.

2. Maintaining Trust and Integrity: Auditors play a crucial role in upholding the integrity of financial reporting and ensuring transparency in business operations. A sustainable audit profession is essential for maintaining trust among investors, regulators, and other stakeholders in the reliability and accuracy of financial information.

3. Enhancing Market Confidence: A robust audit profession enhances market confidence by providing assurance that companies are adhering to accounting standards and regulatory requirements. This confidence is vital for fostering investor trust, promoting capital market stability, and facilitating economic growth.

4. Protecting Public Interest: We as auditors serve the public interest by providing independent assessments of companies' financial statements. The sustainability of the audit profession is essential for safeguarding the interests of shareholders, creditors, employees, and other stakeholders who rely on audited financial information to make informed decisions.

5. Promoting Accountability and Governance: Auditors play a critical role in promoting corporate accountability and effective governance practices. By assessing the effectiveness of internal controls and risk management processes, auditors help identify areas for improvement and mitigate the risk of fraud or financial mismanagement.

6. Adapting to Changing Business Landscape: The audit profession must evolve and adapt to the changing business landscape, including emerging risks, technological advancements, and regulatory developments. Sustainability in the audit profession entails embracing innovation, investing in talent development, and continuously enhancing audit methodologies to meet evolving needs and expectations.

As for our cultural ambition, it likely reflects our organization's aspirations regarding its values, behaviours, and overall identity. A cultural ambition is encompassing themes such as collaboration, diversity and inclusion, innovation, client-centricity, and ethical leadership. It serves as a guiding principle for shaping organizational culture and driving employee engagement, performance, and organizational success.

Regarding disruptive technology and its impact on the audit of the future, it is expected to reshape the audit profession in several ways for which all we are preparing ourselves:

1. Automation and Artificial Intelligence: Disruptive technologies such as automation, artificial intelligence (AI), and data analytics are revolutionizing audit processes by enabling auditors to analyse large datasets more efficiently, identify patterns, and detect anomalies with greater accuracy. This enhances audit quality, improves risk assessment, and enables auditors to focus on higher-value tasks.

2. Blockchain Technology: Blockchain technology has the potential to transform how financial transactions are recorded and verified. Auditors are exploring ways to leverage blockchain for enhancing transparency, traceability, and audit trail integrity. This could streamline audit procedures and provide greater assurance over the accuracy and reliability of financial information. We are proud to announce that we have started to use this approach in practice.

3. Cloud Computing and Remote Auditing: Cloud computing facilitates remote access to data and collaboration among audit teams, clients, and other stakeholders is the paramount aspect of the activities of our firm from the early beginning years. Remote auditing tools and platforms enable our auditors to conduct audits more efficiently, reduce travel costs, and adapt to remote work environments, especially in light of global events such as the COVID-19 pandemic. We are also introducing effectively in practice the concept of remote work of our partners.

4. Cybersecurity and Data Privacy: With the increasing prevalence of cyber threats and data breaches, auditors are focusing more on assessing cybersecurity risks and controls. Disruptive technologies can help auditors strengthen cybersecurity defences, protect sensitive information, and ensure compliance with data privacy regulations. We have highly skilled members of our audit engagement team who are IT Audit & Data Security Experts.

5. Continuous Monitoring and Assurance: Disruptive technologies enable auditors to move towards continuous monitoring and real-time assurance, rather than relying solely on periodic audits. This shift allows for initiative-taking risk management, early detection of issues, and timely intervention to prevent or mitigate potential risks. We are aware that this approach also having some problems and bottle-necks and treating those aspects properly with our adequate response.

Individual perspectives from leaders within our Audit & Assurance business is providing valuable insights into how we as principals-partners perceive these trends, the challenges and opportunities they present, and the strategies they we are implementing to navigate the evolving landscape of the audit profession. These perspectives are  informing our strategic decision-making, drive innovation, and shape the future direction of the organization's audit practice.

Robust governance is the foundation of our firm. Our the Non-Executives as respected international members of the profession  have provided oversight on areas such as audit culture, partner reward and promotion, and quality in our newly established delivery centre. We are respecting and accepting independent advice to  management of our firm.

The reflections from our Non-Executives highlight the crucial role of robust governance as the foundation of our firm's operations. Here's how they have provided oversight in key areas such as audit culture, partner reward and promotion, and quality in delivery centres, as outlined in their report on their work providing independent advice to SFAI MONTENEGRO management in Montenegro.

We ensure that our colleagues are operating in an open and transparent environment, we equip our people with the right tools to make ethical choices and maintain their independence. Our ethics, independence and conflicts report explains the controls and processes we have in place to support ethical and independent mindsets and behaviours. Maintaining an ethical and independent mindset among colleagues is critical for fostering trust, integrity, and accountability within our organization. Here's follows how we ensure that our colleagues operate in an open and transparent environment and are equipped with the right tools to make ethical choices and maintain their independence:

Our ethical and independent mindset

1. Cultivating an Open and Transparent Environment*:*:
We are fostering a culture of openness and transparency by promoting clear communication channels, encouraging feedback, and creating opportunities for dialogue and collaboration among colleagues.
We are leading by example: Senior leadership represented by our two equal principal-partners as full owners of the firm are demonstrating a commitment to transparency and ethical behaviour in their actions, decisions, and interactions with colleagues. We have organized in 2023 internal in-house training courses of Continuous Professional Development – CPD: International Ethics Standards Board for Accountants® Handbook of the International Code of Ethics for Professional Accountants – Including International Independence Standards. 2023, Edition. https://www.ethicsboard.org/publications/2023-handbook-international-code-ethics-professional-accountants
Implement policies and procedures that promote transparency, such as open-door policies, regular conference meetings, and transparent decision-making processes.

2. Equipping People with Ethical Decision-Making Tools:
Provide comprehensive ethics training and resources to educate employees about ethical principles, values, and standards of conduct relevant to their roles and responsibilities, with the latest.
Offer case studies, scenarios, and ethical dilemmas prepared by the World Bank Centre for Financial Reporting Reform – CFRR , to help employees practice ethical decision-making and understand the potential consequences of their actions.
Establish a confidential reporting mechanism, such as an ethics hotline or reporting platform, where employees and audit team members can raise concerns, seek guidance, and report potential ethical violations without fear of retaliation..

3. Maintaining Independence through Controls and Processes:
Implement robust controls and processes to safeguard independence in audit engagements, client relationships, and business transactions.
Conduct independence training for audit team and other relevant personnel to ensure a clear understanding of independence requirements, conflicts of interest, and potential threats to independence.
Establish pre-approval procedures for significant engagements, investments, and relationships to identify and mitigate potential conflicts of interest and independence risks.
Regularly review and update independence policies, procedures, and disclosure requirements to ensure compliance with regulatory standards and best practices.

4.Ethics, Independence, and Conflicts Report:
Publish an annual ethics, independence, and conflicts report that outlines the controls and processes in place to support ethical and independent mindsets and behaviours.a.
The report provides transparency into the organization's approach to managing ethics, independence, and conflicts of interest, including governance structures, training programs, monitoring mechanisms, and disciplinary actions.
We share examples of best practices, lessons learned, and areas for improvement to demonstrate a commitment to continuous enhancement of ethical and independent practices within the organization.

By fostering an open and transparent environment, equipping employees with ethical decision-making tools, and maintaining independence through robust controls and processes, our organization can uphold the highest standards of integrity, trust, and professionalism. The ethics, independence, and conflicts report serves as a valuable resource for stakeholders to understand the organization's commitment to ethical conduct and independence in its operations.

We foster the right tone from the top? By investing in the diversity, skillset and wellbeing of our people. We use SFAI MONTENEGRO continuous improvement programmes to support high quality audits.

Fostering the right tone from the top is essential for promoting a culture of excellence, integrity, and accountability within our organization, particularly in the context of investment in audit quality. Here's how we cultivate this tone and ensure alignment with our commitment to diversity, skill development, employee wellbeing, and continuous improvement:

1.Tone from the Top::
Principals-Partners as senior leadership sets the tone for the organization by articulating clear values, ethical standards, and expectations for behaviour. They lead by example, demonstrating a commitment to integrity, transparency, and quality in all aspects of their leadership.
Senior leaders communicate the importance of audit quality as a strategic priority, emphasizing the firm's commitment to delivering high-quality audits that meet or exceed regulatory requirements and stakeholder expectations.
Encourage open dialogue and feedback between leadership and employees and all the members of the audit engagement team, fostering a culture of accountability, continuous improvement, and shared responsibility for audit quality.

2. Investment in Diversity, Skillset, and Wellbeing:
Investing in diversity and inclusion initiatives is ensuring a diverse talent pool that brings varied perspectives, experiences, and expertise to audit engagements. Promoting a culture of inclusion where all employees and audit engagement team members feel valued, respected, and empowered to contribute their best.
Providing ongoing training and development opportunities to enhance the skillset of audit professionals, including technical skills, industry knowledge, and soft skills such as communication, critical thinking, and problem-solving.
Prioritize employee wellbeing by offering wellness programs, mental health resources, flexible work arrangements like work from home and distance working, and supportive leadership practices that promote work-life balance and mitigate burnout.

3. Continuous Improvement Programmes for High Quality Audits:
Implementing continuous improvement programs that focus on enhancing audit processes, methodologies, and tools to support high-quality audits. Encouraging feedback from audit team, clients, regulators, and other stakeholders to identify areas for improvement and innovation.
Leveraging technology and data analytics to streamline audit procedures, improve risk assessment, and enhance audit efficiency and effectiveness. Investing in digital tools and platforms that facilitate collaboration, data analysis, and real-time monitoring of audit quality metrics. In 2023 we have started to use Robot Process Automation – RPA tools in auditing, with a focus on big data analytics.
Fostering a culture of learning and innovation by promoting knowledge sharing, best practice dissemination, and peer review processes within the audit practice. Encouraging audit professionals to stay abreast of industry trends, regulatory developments, and emerging risks through continuous learning and professional development initiatives. Our principals-partners are very active and participate on various conferences and trainings like CPD organized by among the others IFAC, IAASB, EFRAG, Accountancy Europe, The European Association of Accountants and Auditors for SMEs -EFAA, ACCA.

4. Audit Quality Story:
We are Sharing our audit quality story with stakeholders through various channels, such as annual reports, client communications, thought leadership articles, and internal communications platforms.
Highlighting key initiatives, achievements, and success stories that demonstrate our firm's commitment to audit quality, continuous improvement, and investment in talent development and wellbeing.
Providing transparency into our firm's approach to audit quality, including governance structures, quality control processes, training programs, and performance metrics. We are inviting feedback from stakeholders and demonstrate a willingness to address concerns and implement corrective actions as needed..

By fostering the right tone from the top, investing in diversity, skillset, and wellbeing, and leveraging continuous improvement programs, our organization is strengthening its commitment to audit quality and deliver value-added services that meet the evolving needs of clients, regulators, and other stakeholders. Sharing our audit quality story reinforces trust and confidence in our firm's ability to uphold the highest standards of professionalism, integrity, and excellence in audit practice.

Investors and stakeholders are calling for greater transparency on the effects of climate-related and sustainability matters on an entity’s business model and strategy.

SFAI MONTENEGRO recognizes the growing importance of sustainability reporting and the demand for greater transparency regarding the impact of climate-related and broader sustainability matters on businesses. Here are selected actions that we actively taking to drive high-quality sustainability reporting in the market:

1. Thought Leadership and Research: SFAI MONTENEGRO invests in thought leadership and research to advance understanding and best practices in sustainability reporting. This includes publishing reports, articles, and insights that provide guidance on sustainability disclosure frameworks, reporting standards, and emerging trends in sustainability reporting.

2. Capacity Building and Training: SFAI MONTENEGRO  offers capacity building and training programs to help organizations enhance their sustainability reporting capabilities. This includes workshops, webinars, and educational resources designed to help companies understand the importance of sustainability reporting, align with relevant frameworks (such as GRI, SASB, TCFD), and improve the quality and transparency of their disclosures.

3. Collaboration and Partnerships: SFAI MONTENEGRO collaborates with industry organizations, standard-setting bodies, regulators, and other stakeholders to promote the adoption of high-quality sustainability reporting practices. This includes participating in working groups, task forces, and initiatives aimed at advancing sustainability reporting standards, enhancing data quality, and addressing emerging sustainability challenges.

4. Client Advisory Services: SFAI MONTENEGRO provides advisory services to help clients develop and implement robust sustainability reporting strategies. This includes assisting clients in identifying material environmental, social, and governance (ESG) issues, integrating sustainability considerations into their business models and strategy, and aligning with relevant reporting frameworks and standards.

5. Technology Solutions: SFAI MONTENEGRO leverages technology solutions to enhance the efficiency, accuracy, and reliability of sustainability reporting processes. This includes leveraging data analytics, automation, and digital platforms to collect, analyse, and report on sustainability data, improve data integrity and assurance, and provide stakeholders with timely and actionable insights.

6. Innovation and Best Practices Sharing: SFAI MONTENEGRO promotes innovation and best practices sharing in sustainability reporting through knowledge sharing platforms, industry events, and networking forums. This includes showcasing leading examples of sustainability reporting excellence, highlighting innovative approaches to addressing sustainability challenges, and facilitating peer-to-peer learning and collaboration.

7. Continuous Improvement and Assurance: SFAI MONTENEGRO is committed to continuous improvement and assurance in sustainability reporting. This includes conducting assurance engagements to provide independent assurance on the reliability and credibility of sustainability disclosures, helping clients identify areas for improvement, and supporting them in enhancing the quality and transparency of their reporting over time.

By actively driving high-quality sustainability reporting in the market through thought leadership, capacity building, collaboration, client advisory services, technology solutions, innovation, and continuous improvement, SFAI MONTENEGRO is playing a crucial role in helping organizations meet the growing expectations of investors and broader stakeholders for transparent and meaningful disclosure of their sustainability performance and impacts.