Deloitte & Touche chair and CEO Lara Abrash has been watching the Big Four firm’s audit practice changing over the past two years as the firm adjusts to the pandemic with new technology and reaches out to recruit a more diverse set of young auditors.
Abrash began leading the firm’s audit and assurance practice in June 2019, only months before the outbreak of the pandemic, when the firm needed to move rapidly to remote work. She was previously deputy CEO of the practice.
“All things considered, I would say the firm is doing incredibly well,” she told Accounting Today. “Our people have been very resilient in being able to do their work and continue to support each other and support their communities, reacting to a lot of change in the world and just really focusing on doing the right thing. I do think leading into the pandemic, the investments that companies and issuers made in technology allowed them to effectively do the things they need to do remotely. Our investments in technology also allowed us to do it remotely. But as we looked into the 2021 year-ends and looking forward, we are operating in a hybrid mode right now.”
The move back to the office was delayed by the ever-evolving pandemic for Deloitte and many other accounting and auditing firms, even those that had begun returning to the office last year.
“The Omicron virus put a little bit of a damper on that over the last few weeks,” said Abrash. “Our current position with our people is it’s their preference still if they want to come in or not, but we’ve tried to give [them] what we think hybrid could look like. We’ve talked about this as the year of learning, and that's really important. I don’t think anybody has this figured out, and in our business, we need to make sure we know where the puck is going, which is what our clients are doing. But we do believe that it’s incredibly important for their attachment to each other, their connectivity, their feeling of our culture, to be together from time to time and focusing on high-impact areas. Not just coming in so that they all sit side by side in cubes, but when there’s really an opportunity to come in and connect as well as for on-the-job learning.”
Deloitte is weighing what the arrangements will be like in the year ahead as it works to train auditors. “Our profession has been an apprenticeship model for many, many years,” said Abrash. “While we have great learning and development programs as a firm, making sure that our people are together is also important. We’ve provided a lot of guidance and we’re measuring this year how do our people feel? Are we able to commit to our clients and what are their expectations? That will evolve as we look into next year and what hybrid will look like.”
The firm set up its main Deloitte University facility in Westlake, Texas, in 2011, but it needed to close down the campus for much of the pandemic until last fall. “We opened it back in September,” said Abrash. “Our first area of focus was for people that had joined the firm since the onset of the pandemic that had never been inside the Deloitte facility or to DU. We sent invitations out to all of our professionals that joined us since March 2020, and the turnout and feedback was incredibly strong. We did have a couple of weeks in January that we turned it off, but it’s back on again. It’s a very important part of our learning and culture.”
Audit technology
The firm has been training its accountants on the use of its proprietary auditing technology, known as Omnia. “It’s a cloud-based platform,” said Abrash. “It allows us to essentially have endless amounts of data and capacity in the cloud. It also allows us to be modular and flexible with our technology.”
The system is able to leverage sophisticated data analytics to help with the audit process. “If a great analytic gets determined in October, we have the ability to have that available to all of our professionals and it’s a platform to drive standardization,” said Abrash. “It also allows for workflow. It essentially takes an auditor through the onset of planning through risk assessment into execution and allows them to bring in the best of the firm, including our analytics. It’s also tied to a data aggregation technology that we can either use with our clients, on their technology where it’s seamless that we bring it in, or we can work with them to use it as a connector. This allows teams to no longer have to parse and standardize and structure data. It creates structured data for our use.”
The Omnia system leverages a technology that Deloitte calls “DNAV” for auditing and valuations. “It allows us to, within mere minutes, value companies’ investments,” said Deloitte. “We do an entire set. We don’t do a sample. The idea of auditors solely focusing on sampling is not something that you’ll see as frequently when you have the ability to have 100% data. We also use this data to drive predictive analytics, as well as analytics to help us focus our time around. Where is the risk of a data set? Our teams have a library of hundreds of analytics that they use, either by industry or by account area, in the area mostly of risk assessment as well as testing.”
The system also leverages cognitive technologies such as artificial intelligence. “AI requires a lot of data sets to create good outcomes, so you’re not seeing it extensively used across the audit profession yet, but you can see the art of the possible,” said Abrash. “We have a technology that we use that allows us to first digitize, say, hard copies. If you’ve got a company that maybe has all of their leases in hard copy, we can take those and essentially create digitized information to structure it. Then you could start to compare and contrast leases. With the adoption of the lease accounting standard, you could start to see what modifications could give rise to a different way of accounting. The more of those you feed through AI, you start to have a predictive level of what to expect from an accounting perspective. You can start to see the art of the possible with AI, and we're continuing to invest and experiment. We see that as a really big opportunity for us in the future, but it’s not something we're using extensively today. Today we’re in the period of ideation, where we were with analytics two or three years ago.”
The new lease accounting standard has been an adjustment for many companies. The Financial Accounting Standards Board began requiring public companies to apply it starting in 2019, but it gave private companies extra time until this year to begin implementing it, adding operating leases to balance sheets for the first time for most companies.
“It was a significant lift for our clients to prepare for the adoption,” said Abrash. “You never know where a lease is in an organization. It could be sitting in someone’s drawer. So identifying a complete set of leases and then having a sustained technology set for them was a significant lift., but now that they’ve got a process, we’re not really seeing companies struggle with keeping it going. But the effort to get to it was very significant. I think that is why the private companies needed more time. But the good news is there are more software vendors today than there were when this first came out that now have experience with being able to help companies prepare. And many advisory firms are also now experienced with helping companies quickly think through how to deploy that technology and how to create good processes that are subject to strong internal controls.”
Diversity efforts
Deloitte has been working to expand the diversity of its audit teams through an initiative it calls MADE (Making Accounting Diverse and Equitable), backed by a $75 million commitment (
“MADE is really our investment in the profession,” said Abrash. “This is not about Deloitte just getting more diverse CPAs. Yes, that is part of what we want, but it really is about elevating the diversity of CPAs broadly in the profession, whether they’re accountants, tax preparers, CFOs, or they go off and do other things. When we really got down and looked at the data on our Black professionals and Latinx professionals, and then we looked into what was happening in the market, what was coming back was honestly really disturbing. On average, there’s 1,000 to 1,200 Black students graduating with fifth-year degrees to be CPA-eligible each year. That is not enough to create a robust amount of Black CPAs in the future. We saw a lot of well-intentioned organizations over the years trying to take on this issue by just thinking about how to throw money at it. As opposed to jumping in and throwing money at it, we first focused on what are the barriers to success. What are the root causes that are preventing more black and Latinx CPAs?” The first area Deloitte focused on in making accounting diverse and equitable was awareness. “If you go into schools in urban communities and ask, ‘What do you want to be when you grow up?’ the word ‘accountant’ is not something that rolls off of people’s tongues,” said Abrash. “We realized that we needed to get out into schools, into communities and with families to understand what the profession means and what opportunities there are for people who want to take it on. That’s a big part of what we’re doing right now is working in high schools and middle schools across the country trying to create more awareness. The next phase is really helping and driving the actual education system, so we’re investing time and money into HBCUs [historically Black colleges and universities] to help them up their game around the curriculum and have an accounting curriculum that is set for the future.”
Deloitte is also working with HBCUs and other schools to encourage them to develop more diverse accounting professors who are Black and Latinx as part of their curriculum. The firm is also providing scholarships and offering more flexible ways to become a CPA.
“Probably the biggest area that we saw as a barrier was the requirement to have this fifth year to be a CPA,” said Abrash. “Even for somebody who wants to be an accountant, it’s a financial hardship to go from four years to five years. Part of our money is also on scholarships for the fifth year, and we’re working with schools across the country to provide that. Even getting an accounting degree and not getting the fifth year doesn’t allow them to be a CPA. We also invested in a program at our own firm. What we saw was people who didn’t pass the CPA [Exam] over a reasonable period of time, the chances of passing it started to go down dramatically, and when we looked at our Black and Latinx professionals, we saw that in spades. So we implemented a program last year called Stride at our firm. When students come in and join us, we’ve allowed Black and Latinx students to actually join us in the spring right after they graduate versus the fall, and they spend the summer essentially studying and taking the exam. We don’t put them on accounts and things of that nature, but they participate in other elements of the culture.”
Recruiting and retention
Deloitte also works with Carnegie Mellon University and other schools to connect students with people that are in the accounting profession and provide programming for them. “We’ve got an advisory council that gives us advice all along the way,” said Abrash. “We’re trying to be very strategic in how we invest our time, how we invest money with this goal of increasing the pipeline, as well as increasing opportunities for advancement. If we get this right, we’re not going to know it in six months. We’re going to know it in a five- or 10-year period. But we’re hoping we can then also get other organizations to join in on these efforts so that all of these dollars, including government dollars possibly, are focused on the areas that matter.”
Many firms besides Deloitte have had difficulty recruiting students to join the accounting and auditing profession, and the American Institute of CPAs has been working with the National Association of State Boards of Accountancy on a CPA Evolution initiative that they hope will draw more young people to the profession.
“The number of CPAs that are coming out of colleges and universities are on a trajectory that’s not positive,” said Abrash. “They’re going down each year. I would get back to root causes. Over the last decade there’s been an inordinate amount of focus on STEM [science, technology, engineering and mathematics], and this belief by students that that’s the only way to be successful in the future. Even when students do choose business, they are looking at that fifth year, and they’re looking at what they know they can do when they graduate. We’re doing a lot of things at the colleges and universities, trying to make sure people really understand what the profession provides them and what the role of an auditor in particular will allow someone to do. We share with them that this is a very different audit profession than it was even five years ago. It gives you opportunities to build skills in emerging areas like AI, leveraging technology like analytics and data, with an understanding of things like accounting and industry. That’s a really good way to start your career. We are back to doubling down and working with universities to make sure earlier in someone’s choice that they understand that.”
An accounting education can prepare students for any role in the future. “The accountant in an organization has to understand how the company makes money, and their role allows them to sit at the very top of an organization and understand their industry and operations,” said Abrash. “This is all happening at a time when we’re developing a new economy. We’re seeing companies doing electric cars, cryptocurrency exchanges, and different ways of doing things than we’ve ever seen. The people who choose this accounting path not only will build skills that are absolutely amazing and very relevant for the future, they’re also going to have an opportunity to see how the future is going to come to life. Whether they stay in accounting or decide to go do something else, it prepares them incredibly well.”
Not only recruiting but retaining accountants has become a challenge for many firms during the so-called Great Resignation.
“From a retention perspective, it’s really trying to listen,” said Abrash. “Being a leader of a firm like ours, it’s an obligation and it’s something I get a lot of joy out of, but it’s really important that our focus is the talent experience to give our people. It’s making sure they're getting the best learnings, as well as the experiences. The experiences they could have today are so much better than what I was growing up in the firm. My first client was a newspaper that hadn’t changed for a hundred years. I worked there for eight years, and for eight years they didn’t change. These professionals are working on SPACs, they're working on IPOs, they're working with emerging clients or clients that are trying to digitize their finance organization, so they're starting to understand how they're deploying bots. What does it mean to audit a bot? Those experiences are different. We're giving them opportunities in ESG. For many of our people, that's incredibly important because it aligns with a purpose that they have. We’re trying to really fulfill our responsibility around the experience they have by listening to them, giving them varied experiences and great learnings, making sure this is the culture they fit in, an inclusive culture, and ultimately a place where we hope they want to spend the rest of their life. But if they don’t, they’re prepared for the next phase of their career.”
ESG assurance
Firms like Deloitte are also exploring how they can provide the growing demand from companies for environmental, social and governance reporting as more investors put their money into ESG funds, and regulators appear to be on the verge of requiring companies to provide more disclosures about how they are responding to the accelerating pace of climate change and its risks. Auditing firms are starting to offer assurance services to clients for vetting their sustainability reports.
“We clearly have the ability to provide that role,” said Abrash. “I think an objective and independent firm that’s got the skills to provide assurance and understands the subject matter expertise is uniquely positioned. Whether it’s Deloitte or any other audit firm, we’re clearly looking to be positioned for that. But ultimately, the assurance piece is going to be a question of the key stakeholders. What do investors think of this information and is it such that they believe it’s investment-grade information? Is it as important to them as GAAP EPS, and if it’s important to them as the GAAP numbers that they’re relying on, then they’ll demand assurance.”
The Securities and Exchange Commission issued a request for comment last year on climate risk disclosures and received an onslaught of feedback. The SEC is expected to result in some requirements to be proposed this year.
“I think the other stakeholder will clearly be the SEC and what their view is and whether they believe it’s information that is as important to investors as the other pieces of the financial statements,” said Abrash. “Our responsibility is primarily focused on the core financials, so if it’s in different places, the responsibility will vary. If you talk to others from at least the Big Four, if not broader, we’re all prepared for it. We see clients already asking for it without someone requiring it because their boards and their shareholders want to make sure there’s an objective view. It should be subject to the three lines of defense, just like all other key information coming out of the company. And if that means a third-party objective independent assurance, we believe we’re positioned for it. We’re right now investing significantly to ramp up and be prepared for what we see as an increasing market, primarily around climate right now.
Meanwhile, ESG standard-setters have come under pressure globally from various financial regulators to more closely align the various ESG standards and frameworks. As a result, the International Financial Reporting Standards Foundation is in the process of establishing an International Sustainability Standards Board that it will oversee alongside the International Accounting Standards Board, bringing together various standard-setters under its umbrella.
“I think everybody’s waiting to see what standards ultimately will get used consistently, which is important, and whether it’ll be mandated by the SEC,” said Abrash. “I think that’s a political dynamic, a hot potato right there.”
New PCAOB
The SEC under the Biden administration and the new SEC chairman Gary Gensler appears to be proposing new regulations for overseeing the financial industry, including a proposal Wednesday for auditing the financial statements of private equity firms and hedge funds (
“It’s really too early to tell,” said Abrash. “We have a new PCAOB board. What I’ll say is we’re incredibly committed to delivering high-quality audits. We’re incredibly committed to our relationship with the PCAOB. It’s very important. Sarbanes-Oxley, if you look back, has been effective, and the PCAOB overseeing the audit firms has actually improved audit quality, I believe, across the board. So if the PCAOB believes there are more things that we need to do, I’m very supportive of working with them to make sure we get to really good outcomes for the markets. That’s our collective number one priority is delivering to investors their ability to rely on our information. So I'm very supportive of wherever they go. I don’t think of words like ‘tough.’ I think about it as having a collective job to do, and if we believe we all need to evolve and change to do something better, we’re very supportive as a firm in doing that.”
Future plans
Her plans for the audit and assurance practice at Deloitte include evolving its business model, auditing technology and workplace amid the continuing changes from the pandemic and beyond. “Probably our number one priority right now is the future of work, which is really how do we evolve our business model to bring together the most advanced, digitized and transformed way of doing audits, so we deliver high quality that’s painless for our people and clients, and it’s insightful,” said Abrash. “We’ve made a lot of progress there, but we continue to evolve. But as you do that, how do we then evolve the workplace itself, which is how do you group and congregate our people? Today we’ve got hybrid as a topic we’re taking on, but as we look forward, we can see the ability for more of our people to work virtually, and to work rather than on a client, maybe across clients in areas that are building exceptional expertise.”
Deloitte is also evolving its workforce and talent needs. “As you look forward, what we’re thinking about is how do we build the skills to actually run the firm of the future,” said Abrash. “It may not all be CPAs. That’s not because there are not enough CPAs. It’s because you need different types of skills. We found that project management is an incredibly important part of what we do, and rather than having accountants do that, have people that are skilled doing that, bringing in people that are data scientists and analytic expertise, people that have the ability to parse and leverage data. A big part of what we’re doing right now is evolving the talent to be the talent of the future to sustain us, to build the leaders that we need, and then also prepare ourselves for an evolving market.”
The market has been changing rapidly in recent years with clients going public in various ways, and the accountants and auditors are adapting as the firm becomes more diverse. “We’ve seen a fair amount of churn even in the public markets around the number of audit opportunities that the firms are getting,” said Abrash. “And then as you look forward, you’re seeing SPACs and IPOs. The numbers in the last two years alone are creating significant new public companies. Making sure that we’re by their side for the ones we audit and prepare for them is also a really big area that we're focused on to make sure we get right. And then this element of MADE is about diversity more broadly. What does the workplace of the future look like and how do we make sure our culture is a place where they all thrive? It’s not just a focus on Black and Latinx professionals. It’s a focus on women, people of different genders, people that are on the spectrum. It doesn’t really matter. It’s about how people show up, and everybody thinking they can be their authentic selves. What we’re building now is a firm for the future.”
