Demystifying the future of the audit

June 24, 2022 9:00 AM

Nobody is safe from change, not even the world of auditing. In audit firms, we’re already seeing discussions related to the people, processes and technologies that will be needed to support the audit of tomorrow. Audit committee members and corporate finance professionals should not only be aware of these ongoing conversations, but also actively participating in them so they too can understand how the audit is evolving — and what that means for their businesses.

These changes may seem overwhelming, but the good news is that change happens over time. Auditors and clients can and should use that intervening time to prepare for what’s to come, so they find themselves ready to meet the challenges of tomorrow.

While certainty is out of our control, we can make some well-informed predictions that sketch the general shape of audit’s path to the future. Here are three predictions on the evolution of the audit, and three ways you can respond.

Prediction No. 1: The proportion of non-financial information included in an audit will increase to 30-50%

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Currently, the audit focuses on providing an opinion on the historical state of the business, with a heavy focus on financial data. As the world grows increasingly connected and technologically advanced (according to Accounting Today’s webinar on The Audit in 10 Years, 73.3% of attendants said technology is the biggest driver of change in auditing), the mandate to analyze and interpret non-financial data also increases. As a result, the audit of the future will be more focused on the sustainability of businesses, supported by non-financial evaluation points.

In particular, there are two areas where we expect to see greater representation in future audits: environmental, social and governance factors and digitization. ESG reporting requirements are already evolving, as evidenced by the SEC’s newly proposed climate disclosure rules for public companies. And as companies increasingly digitize their data and workflows, greater attestation around cyber security is a must.

Audit firms will begin to adopt predictive analytics to address threats to the business before they ever happen, and to identify opportunities through analysis of non-financial data. When considering working with an audit firm, audit committees should ask pointed questions related to the firm’s collaboration tools, visualization and cognitive analytics. It’s important to understand not only where the capabilities currently lie, but also how the firm plans to grow and leverage them in the future.

Prediction No. 2: The relationship between auditors and key stakeholders will become more collaborative

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Technology advances allow for steady streams of data to be automatically collected and analyzed year-round. That means key stakeholders — including regulators — will likely come to expect more frequent, real-time updates on the condition and prospects of the business. The result is an evolution of the dynamic between auditors and their key stakeholders. Technology advances are also paving the way for higher-quality audits. Tools are in development that will have the capability to verify independent information, allowing regulators and the capital markets to have more confidence in resulting audit opinions.

Furthermore, the way information is shared will also likely change. Data dashboards, for example, are already going from nice-to-have to must-have. These types of tools make it easier for stakeholders — especially the C-suite and board — to understand the information the auditor is sharing with them. Audit committees should expect more and more audit firms to deploy their own proprietary technology platforms that make information based on evaluation of complete data sets accessible and clear to clients. The best of these platforms will include data visualization tools, artificial intelligence and machine learning.

Prediction No. 3: The composition of audit teams will look different

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Change has a ripple effect. The emergence of new technologies and expectations will lead to new skill sets needed on audit teams. In addition to requisite accounting skills, competencies like academic and technology skills, project management, data analytics, data science and workflow management will drive who sits in an audit room. These skills are needed to ensure audit teams are up to speed on extant technology.

It isn’t just about tech capabilities, though — skills like imagination, curiosity, creativity and problem-solving will be instrumental in finding new efficiencies in the audit process. A passion for ESG, ethics and values will ensure auditors are uncovering the right information to help their clients increase business sustainability. As a result, audit committees should be prepared to work with more diverse and innovative audit teams in the future.

Response No. 1: Adopting new and leading-edge technology

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If an audit firm isn’t using cloud-based products, analytics, automation and integrated technology platforms, they’re already behind the curve. Other technologies worth investing in include data dashboards and predictive analytics. Learning these technologies now will ensure you’re prepared for when they become table stakes in the future.

Response No. 2: Rethink how your firm is training talent

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Now is the time for firms to reassess your organization’s learning model. Consider what skills you’ll need in the next five to 10 years and review the steps you are taking to upskill auditors. Make sure you are keeping in mind both expected technological advancements as well as the new hybrid working environment that is expected to continue post-COVID. The pandemic created a learning gap for many junior auditors by restricting their work experience to virtual audit rooms — make sure your firm is shrinking that gap, not allowing it to widen.

Response No. 3: Adopting a new perspective

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Auditors need to study the needs and expectations of key stakeholders and relevant regulatory bodies. What are they prioritizing now? What do you anticipate they’ll prioritize in the future? What aspects of the business environment are causing the greatest alarm? Thorough research today will help anticipate the problems of tomorrow. Your stakeholders and regulators will thank you for your foresight.