What to do to future-proof your audit practice

It has been recently reported that the ICAEW has warned that the UK government’s failure to overhaul the audit sector risks seeing the country lose its position as a “world-leading” investment hub. 

The accounting body’s chief, Michael Izza, even said that these delays to plans that will reshape the way the country audits could see foreign investment dwindle in Britain, as they are likely to find other more trustworthy destinations in which to place their funds.  

The future of auditing is still foggy, but the need for its change right now is a response to a succession of high-profile scandals involving audits at top UK-based companies, which include the likes of Thomas Cook, Patisserie Valerie, and Carillion. In these cases, the appointed auditors reportedly failed to spot red flags, and as a result, brought into question the trustworthiness of companies’ financial statements.  

The UK’s plans to change up the audit industry, which has been in the works since 2018, are supposed to boost the quality of audits performed by any and all firms, and would see the FRC replaced by a stricter regulator – the Audit, Reporting and Governance Authority (ARGA) – in pursuit of said quality. 

Thomson Reuters recently released a white paper titled ‘The Future of Audit’ in which it very boldly stated that “the auditing profession is on the cusp of a wholesale transformation, with the potential for tangible substantial change and the benefits to considerable capital markets”.

The white paper also concedes that, for a profession losing talent, “the adoption of new audit technologies can stem the outflow of auditors”, reversing the steady decline.

According to Thomson Reuters, the future of audit lies in the adoption of data analytics, robotic process automation and open banking, among other digital tools and developments. This is in anticipation of more regulators to come who will be very curious to know how firms deploy technology in their audits, how they foster the confidence to change, and in doing so, also secure a “competitive” advantage that supports quality in audit. 

EY’s global assurance talent leader, Dilek Çilingir Kostem, who is responsible for overseeing talent strategy and the implementation of all of the firm’s assurance sub-service lines across the world, weighs in by saying that, “in an increasingly interconnected world, new developments with advanced technologies and data are transforming how audit supports the changing needs of the capital markets, both with financial and non-financial reporting”.

In her role, Kostem manages roughly 120,000 people in over 40 countries and shares from experience how audit teams already bring together an “increasingly diverse” set of skills, which she believes will only accelerate as new technologies are adopted and “the role of the audit professional continues to evolve”. 

With that said, in order to keep up with the demands of a digital world, Kostem advises that “skillsets will need to be further enhanced to encompass new competencies, such as coding and data visualisation, and new areas, such as the analysis of non-financial information – for example, rapidly changing ESG standards”.

“Audit professionals also need to understand and assess the risks and considerations associated with these technologies, particularly as companies implement new systems and generate new data that impact financial reporting, such as business models dealing with Cryptocurrencies,” she continues. “Talent investment needs to go beyond technology-specific training and focus more broadly on the development of new skill sets – enabling teams to harness the full potential of new technology and bring a new lens to their work.”

Technology is quite an obvious prerequisite when it comes to discussing the future, but when it comes to a facet of accounting that has had a number of scandals in a relatively short space of time, the industry also needs to heal from these reputation failings. 

Marie-Laure Delarue, EY’s global assurance vice chair, who is responsible for leading and setting the direction and strategy of the firm’s largest service line in terms of revenue as well as people, is of the opinion that, when it comes to reputation failings, it’s about “constantly looking to evolve and adapt to the environment around you”. 

According to Delarue, the firm is committed to the continuous improvement to its delivery of high quality audits, and as an example, has cited the recent implementation of its risk and audit procedures regarding fraud, which leverages the use of data and power of advanced technology. 

“We believe that these innovations and improvements are imperative for the audit profession as a whole, in order to build even greater trust and confidence in audits globally, and in how our profession serves the public interest,” she says. “However, the introduction of new technologies, such as artificial intelligence, machine learning and advanced analytics, will enable auditors to sort through data more productively, helping to identify suspicious activity for further investigation.”

With that said, the future also relies on firms and their employees striking a happy balance between the soft skills and critical thinking needed in the workplace and the tech savviness that the industry has come to demand. Kostem agrees that the skills of an auditor are changing and will continue to evolve, yet as in many other industries, the increasing use of technology also means a balance of necessary skills (if they want to “develop the next generation of successful business leaders”). 

“Auditors need skills such as communication, relationship building, adaptability, project management, and empathy, in addition to digital fluency and technical and leadership skills to deliver high quality work and value to clients,” she continues. “As leaders, we need to demonstrate the importance, and benefits, of developing both types of skills, and ensure that employees are provided with the right opportunities to learn and grow.” 

As someone who has her finger on the pulse of a large group of industry professionals at EY, Kostem also touts that the need to adopt “a mindset of lifelong learning” and enhancing future-focused skills is exactly what will set up the industry for the future and appease regulators.

Of course, new international standards inevitably provide growing pains for the industry in an effort to establish further enhancements to the quality of audit by requiring firms to establish quality objectives, and processes and controls based on the risks that are particular to individual firms. 

“At the same time, the adoption of these standards creates opportunities for firms to drive consistency across member firms within a global organisation, reinforce tone at the topic and accountability for quality, and strengthen trust and confidence in the audit profession,” Kostem reassures. 

The profession also faces a host of international sustainability reporting standards and frameworks – as the demand for attestation services to be performed on disclosures increases, so does the demand for professionals with the requisite technical knowledge of sustainability matters coupled with auditing expertise, says Kostem. 

As a result, Kostem says that the audit profession “must continue to meet this demand by developing the necessary methodology, training and quality control measures to deliver high quality attestation services in this area”.

There is no stopping the progress that audit quality will bring in this decade – it’s only a matter of organising every firm to face the challenges of digitalisation. As Thomson Reuters put it, “it is now up to auditors to grasp the mettle and progress towards continuous auditing to enhance the value for clients and improve the auditing process”.