Charged with navigating more complex reporting standards and new technologies, coupled with momentum building among regulators for mandatory auditor rotation, the nation's auditors find themselves more than ever under public scrutiny.
As evidence, few either in the general public or the profession could probably cite examples of improper or fraudulent tax returns of a Fortune 500 company, but brands like Enron and WorldCom have become ingrained in the public lexicon of mammoth audit failures.
With that in mind, experts say that today's auditor needs a heightened skill set from those of a generation ago, as not only have standards become more complex -- including more companies engaging in global commerce, as well as the potential convergence of U.S. GAAP and International Financial Reporting Standards -- but the techniques for perpetrating fraud have, as well.
Gone are the days of the bulky 13- or 14-column worksheet accompanied by a footlocker of workpapers. The 21st century auditor must brandish a toolkit that includes an IT systems pedigree and a good knowledge of forensics, valuations and regulations, while maintaining the traditional degree of skepticism and professional judgment that are the foundations of audit and attest work.
And despite the surge in CPA firms branching out into new client niches, auditing has seen a resurgence of sorts. In Accounting Today's 2012 Top 100 Firms report, audit and attest services ranked No. 4 in the percentage of T100 Firms reporting year-over-year growth in that niche. In the 2011 study, A&A came in at No. 9.
CHANGES ALL AROUND
"Thirty or so years ago, accounting was far simpler," explained Chuck Landes, vice president of the Professional Standards Group at the American Institute of CPAs. "At that time, historical cost was the basis and the accounting model did not focus on fair value. You found out what an asset cost and figured out how to get the income statement properly matched with revenue. Back then, conservatism was not a bad word."
Robert Rollman, a partner with O'Connor Davies, said that in order to conduct proper risk-based audits, more senior personnel have to be assigned to engagements. "Auditors will need to become skilled in International Financial Reporting Standards and in International Standards on Auditing, as even smaller organizations are transacting business internationally and may have a need to report financial statements following IFRS," he said. "Auditors today need audit tools, practice aids, methodology and dashboards that are integrated into their paperless audit software. Sophisticated, user-friendly data analysis audit tools that enable all auditors to analyze large data files will continue to evolve and be sought after by auditors."
Bruce Nunnally, director of accounting and auditing at Carr, Riggs & Ingram, echoed the need for new technologies, as well as the globalization of auditing. "We're a multi-office firm and we have multiple people in different locations working on an audit -- sometimes four people in four different cities. Technology allows us to do that. If an auditor is still doing audits with pencil and paper, they are so far behind the curve that they need to consider another career. And if you aren't paperless, you're driving a go-cart in a NASCAR race. I don't care what size CPA firm you're talking about."
In addition, Nunnally and others emphasized the globalization trend for businesses of all sizes, which adds to the auditing burden. "I've had a client for many years that until just a few years ago had been using the same processes in three small facilities in the southern U.S. Now, due to competition and other factors, they are in all 50 states and purchasing raw materials from three foreign countries."
"It's how you go about approaching it," said Angela Katehis, a principal in the quality control department at New York-based Berdon. "As reporting gets more sophisticated, there's a need for more industry expertise in areas such as stock options, revenue recognition and, of course, IT."
COMMUNICATION REMAINS KEY
Despite quantum changes in auditing technology and reams of evolving standards, critical thinking and communication remain among the top prerequisites for auditing.
"You still have to communicate and understand the clients' needs," said Don Pfluger, partner-in-charge of the Auditing Standards and Accounting Principles Committee at CPA and business advisory firm Gallina. "You can teach people the technical things like standards and technology, but you can't teach someone to think and exercise independent judgment. We need auditors to think and be fluid on their feet. Some of the smartest accountants I have ever known are not the ones who knew standards backwards and forwards, but the ones that knew how to write and think."
Mike McMurtry, a partner in the professional practice group at New York-based EisnerAmper, is part of the training team for new auditors at the firm. "There's lots of things we look for. We see if they can use tech tools, but are not so reliant on them that they can't think. That's not so easy to teach."
"Auditors need to understand business processes and controls, including how companies mitigate weak controls or perform effective monitoring activities, and understanding data so that use of data analytics will highlight anomalies, errors and fraud indicators in less time and with less risk than sampling," said Carolyn Newman, president and co-founder of Audimation Services, a provider of audit analysis and technology solutions and distributor of IDEA - Data Analysis Software. "Also, there's going to be a greater need for specialization of knowledge by industry."
"Years ago, we relied more on checklists," recalled Nunnally of CRI. "Now we train people to look for trends and that results in more questions and more thinking."
Said Landes, "Auditing was and always will be a thinking person's profession. A piece of software will never replace that."
