The audit in 10 years

Imagine a high-tech control room, with wall-sized screens full of KPIs and digital renderings of transaction flows, and rows of monitoring stations staffed by vigilant professionals who are keeping an eagle eye on the state of an organization in real time, offering course corrections and issuing warnings on dangerous risks within seconds of their arising.

That’s the audit in 10 years — or one metaphor for it, at least.

There can be no doubt that the core service of the public accounting profession is in the midst of a period of significant change. From the overnight pivot to remote auditing over the course of the COVID-19 pandemic, to the emergence of an ever-more-coherent set of standards and frameworks around ESG reporting, to the influx of new tools like the upcoming Dynamic Audit Solutions spearheaded by the American Institute of CPAs, the last few years and the next few will see major developments in the shape, purpose and execution of
the audit.

But what about the long-term future of the audit? While the next few years’ changes can, to some extent, be foreseen, what about the next decade’s? As hard as it is to anticipate the impact of the immediate changes, what will 10 years of advancements in technology, shifts in market demand, and evolution in the regulatory environment bring?

Imagine it’s now

One change many experts in the field expect in a decade is a shift toward more real-time assurance — though they vary on how far that shift will go.

For Al Anderson, the founder and president of AccountAbility Plus, it will go all the way to something like continuous auditing, as reflected in his idea of the metaphorical control room described above. “I think of auditing in 10 years as monitoring the control panels at an electrical plant or a nuclear facility,” he explained. “The auditors are monitoring all these gauges that are monitoring transactional activity, and they’re at this dashboard and when something pops out, then they’re going to go in and investigate it.”

With technology monitoring transactions in real time, auditors won’t have to wait for the quarter- or the year-end to raise questions, and that real-time monitoring will be enabled by much deeper integration between systems. “Through the platforms that both our clients are creating for their data — which will be supported by next-generation technology that isn’t around yet — and our technology, the auditor is going to be able to seamlessly pull information in a way so that we can assess risk at a level that I would suggest will be as close to real time as possible … whereby transactions will be flowing through systems and you can almost audit the transaction and be done with it,” said Jon Raphael, audit and assurance national managing partner — transformation and assurance at Big Four firm Deloitte & Touche. “The control testing, the interim testing and the year-end testing on that transaction can all be done at that point in time.”

A key element of that tight integration is the ongoing migration of data and systems to the cloud. “There’s this merger that’s going to occur in the cloud between the accounting analytics systems and the audit systems,” said Erik Asgeirsson, the president and CEO of CPA.com. “Hopefully it moves to more of a continuous dialogue between the auditor and the client, where they have set up data-extraction tools and abilities to get this information on a more real-time basis, and provide assurances on the monthly and the quarterly financial statements, or other types of reporting like ESG, and then also being able to have more of that ongoing real-time business insight discussion with their clients.”

Technology isn’t the only thing driving the long-term move toward more real-time auditing. “In general, users of financial statements are looking for more real-time information and creating questions over the relevance of the financial statements that are issued on a quarterly or biannual or annual basis,” said Heather Paquette, national technology assurance leader at Big Four firm KPMG. “It feels like the users of financial statements want more real-time information, and that may drive the need for continuous auditing.”

Anderson agreed: “An audit of a financial statement is so far after the fact that you just don’t make decisions on it,” he said.

Some experts don’t think it will even take a decade for this real-time revolution to start. “Many of these things are happening today, or we’re absolutely on the cusp of them happening, and we can see it, we can almost taste where that will be in the very near term,” said John King, vice chair of assurance for the Americas at Big Four firm Ernst & Young. “This notion of continuous auditing is much closer to reality today than it ever has been.”

Imagine less risk

In 10 years, the same systems that enable a real-time approach will also both lower risk and make risk assessment significantly easier and better.

“We’re going to know some things that are being processed through an automated system may have low to no risk if they follow that path,” explained Raphael, “and then everything else is what you want to look at and assess, ‘Do I want to spend more time looking at them or not?’ That’s where the technology will be able to parse through that at a transaction level, which is a data-driven audit to be able to highlight things for the auditor to think about — things like predicting fraud, or something that looks different and out of the ordinary. Audits are good now, but they can be much more refined and focused on where actual risks are in the future.”

“We will have solved the ‘data ingestion’ challenge through use of common data standards and APIs,” predicted Sue Coffey, CEO of public accounting at the Association of International Certified Professional Accountants, “and that will allow a deeper, richer use of data to identify the most meaningful risks and drive the auditor to the most relevant audit procedures. It will also eliminate or significantly reduce some of the common audit procedures we perform today, like sampling or confirmations.”

And broadly speaking, the ongoing automation of routine audit activities will help reduce risk, and improve audit quality in general, by freeing up auditors’ time. “Automation creates capacity for an auditor to focus on areas that require greater judgment and insight … so that they have time to focus on areas that really make a difference in the work that we’re doing, such as being more deliberate in performing our risk assessment procedures, because you can use a digital methodology coupled with data analysis, and you can do a more precise and deliberate risk assessment,” said Paquette.

Imagine it’s nonfinancial

For almost a hundred years, the audit has been more or less synonymous with financial information; that has been changing recently, but experts expect it to change much more over the next decade.

“I see the auditor focusing more and more on nonfinancial data and information on a very regular basis,” said Coffey. “Things that are a major part of driving a business, in addition to the financials.”

“For well over 20 years, we’ve been deeply involved in identifying and developing the standards and guidance development for assurance on nonfinancial subject matter,” she said, citing the success of SOC reports, as well as the profession’s early involvement in integrated reporting, and pointing at opportunities in ESG, cybersecurity, privacy, processing integrity, data integrity, and even identity protection and authentication around fast-developing technologies like deep fakes.

“I expect to see the skill set of auditors being applied to large swathes of information outside of what is currently the case,” said Julie Bell Lindsay, CEO of the Center for Audit Quality, citing areas like climate and other ESG information, cybersecurity and more. “The amount of information that investors are asking for and companies are providing to the marketplace has grown exponentially, and even the types of businesses and the information that make up the value of those businesses have changed, so transferring that auditor skill set to these other areas of information is something I expect to see happen.”

Expanding assurance beyond financial information may also mean expanding who relies on that assurance, said Wes Bricker, vice chair and US Trust Solutions co-leader at Big Four firm PwC: “As we see more of this, the audience that counts on the profession to be relevant and to be skilled in these areas, to be objective and independent, widens. It widens from sophisticated financial trading partners like investors, to those who are consumers, and so what we mean when we say public responsibility will widen beyond those who have expectations for our credibility and expertise in financial matters, it will extend to a much broader set of expectations. That could create an expectations gap unless we work hard to understand those expectations, how they shift, and then work together as a profession to meet and exceed those expectations.”

He also added that exploring areas beyond financial information doesn’t mean abandoning it entirely: “I hope that in 10 years we are connecting nonfinancial and financial in a way that is integrated such that users can see nonfinancial information as being ‘prefinancial’ — because activities translate into financial impacts,” he said. “I hope that we see reporting about the impacts to customers, to suppliers, to citizens. I hope there’s more consistency and comparability of information country to country and across important topics like environment, social and other governance topics.”

In the end, the question won’t be whether the information is financial or nonfinancial; what will matter is that someone wants certainty around it.

“As time goes on over the next 10 years, there’s probably an assurance component that would help validate and legitimize whatever society chooses to value,” said Anderson. “Right now, ESG is what society’s choosing to value; what’s going to be important to society in 10 years and what do people want to feel comfortable with what people are asserting they’re doing with respect to a particular societal value, someone will want assurance on that, because you’ll make decisions on companies and businesses to go work for and what your future looks like based on what’s important to you. … It’s really going to be built off of the assurance around whatever society chooses to value.”

Imagine it’s not paper

Bricker also made a case for an important conceptual shift that may come over the field in the next decade.

“Today, we design the audit for the financial statement as a whole,” he said, “but that orientation is a paper-based orientation — you pick up a printed set of financial statements, you open the cover page, you find the audit report, you read it, and then you continue to read the primary financial statements, the footnotes that explain those primary financial statements, and you ultimately conclude about the pricing of the security and voting on the directors — that’s the premise. That’s a paper-based world — but we’re in a digital world. Digital is not so straightforward because we can connect vastly more information whenever we’re doing the job of analysis and decision-making … . As I think about connecting domains, we’re connecting domains because the market in many ways is already connecting them.”

CPA.com’s Asgeirsson also saw future auditors reaching for more than just what’s in the financial statements. “One thing we’ll see more of is bringing in external related data to try to understand what’s going on with a particular business,” he said. “So you have data being supplied from the business, but then bringing more external data in that helps you identify anomalies and identify potential improvements for the client.”

Imagine it’s global

The auditor’s role in the capital markets is a touchstone for many in the field — but the capital markets will spread more widely between now and 2032.

“As this all evolves over the next decade, one thing we’ll see is in the emerging markets — the willingness, if you understand what’s happening in these emerging markets, to deploy capital; hopefully we’ll be able to deploy capital in a much wider and more inclusive fashion than it’s deployed today,” said Asgeirsson. “There’s a lot of capital deployed in the public markets, and private markets continue to get better.”

More global markets will call for more global auditors, according to Bricker. “We’re not counting on necessarily putting people on planes or asking them to move or to emigrate from one country to the next in 10 years, not because we’ve nationalized the work, but because we can stretch around the world and put together a workforce that is coming together against a common objective on a worldwide platform, and they can literally produce as the sun moves around the globe,” he said.

A global audit profession, in turn, will call for auditors who are comfortable outside their own home countries. “When you look out 10 years, I see it being a very small world,” said EY’s King, “and I think people are going to have to have skills that enable them to really work in a fluid way across cultures, time zones and so forth.”

Imagine it’s more diverse

While being global will, almost by default, mean being more diverse, the expectation for some leaders in the audit field is that the profession will see greater diversity for better reasons than just as an accidental byproduct of worldwide expansion.

“It is my hope and strong belief that a decade from now the U.S. public company audit profession is going to better reflect the communities in which we live and the communities we serve,” said Lindsay, whose CAQ has launched two recent initiatives to highlight firms that are attracting more diverse pools of talent and to draw a wider range of high school and college students into the profession. “Public company audit firms have focused on diversity, equity and inclusion for years, but there undoubtedly remains a lot of room for growth in this area, especially with Black and Hispanic and Latino talent entering the profession.”

While undoubtedly beneficial, the diversity of a decade hence will also bring management challenges. “When I started, everyone basically had a similar background to me, looked like me, had the same career aspirations I had, and so in that sense, it was pretty easy to manage because everyone was pretty similar,” said King. Going forward, though, “The teams will continue to be more diverse and be better as a result, and have different disciplines and different backgrounds. When you look at the experience that someone will have in 10 years, it will be a much richer experience, for sure, but it will depend on that person’s ability to interact with people of different backgrounds and different disciplines, and bring together a team. That’s what leadership is about. I’m confident that we will get better at developing [those] leaders.”

Imagine more non-CPAs

Diversity in audit will encompass other areas than race or gender; on a very practical level, it will include expertise from a wide range of areas outside just accounting.

“The day-to-day life of the auditor will continue to move from general understandings to more specialized understandings,” said Bricker. “Generalists and specialists — the world requires deeper, more specialized skill sets in order to differentiate value. What does that mean on a day-to-day basis? It means that the makeup of the profession will be much wider. Traditional accounting students, of course, but also supply chain management, computer science and engineering, but maybe also marketing to understand consumer expectations; at PwC we like to say it will take a community of solvers coming together in unique ways. That’ll be the face of the profession — a community of different domains of knowledge and expertise coming together in a unique way.”

King noted that this trend is already well under way: “Today, and this will be increasingly true going forward, audit teams are made of folks from all kinds of different disciplines. You’ve heard the statistic that 18% or so of the hours that we incur to do an audit are done by people who are not auditors — they’re IT people or they’re tax people or they’re valuation people, and so forth. That continues to increase, and we’ll continue to see that.”

The more nonaccountants a firm has on staff, of course, the less it may look like an accounting firm. “The real thing you need to think about is, in 10 years, is there such a thing as a CPA firm as we know it today?” asked Anderson. “The whole concept of ‘certified public accountant’ — those words put a boundary upon us that is not going to be an important boundary in 10 years. What does the assurance and advisory profession look like? What does that mean to the future of CPA? It has to evolve, of course, and it has to grow. … Will a CPA firm be called a CPA firm in 10 years?”

Imagine it’s more interesting

Thinking of his daughter, who’s currently studying accounting at Texas Christian University in Fort Worth and is interviewing with firms, King posited a future where she and other young accountants will skip much of the grunt work that used to occupy entry-level staff’s time, and move much more quickly to higher-level work that’s more valuable — and more engaging.

“I spent the first two or three years of my career basically as a doer — mailing confirmations, receiving confirmations, you know, very basic things,” he recalled. “I think their experience in many ways is going to be entirely different from when I started 30 years ago. From the jump, they’re going to have to be really good at not only being a doer of things but being a user and aggregator of different pieces of data and information, and being able to synthesize that. … Immediately, they will use more synthetic skills and more executive skills. Part of that is we will be able to move forward their higher-level interactions with clients where they get that really executive experience, whereas it has been pushed back a little bit over the past 10 or 15 years. I think they’ll see that much earlier in their careers.”

Automation of much of that entry-level work is what’s freeing up auditors at all levels. “They’re not ticking and tying, and they’re not adding up the totals — that’s all automated and we’re using tools for that,” explained Paquette. “It’s very much having more capacity for judgmental tasks.”

Raphael agreed: “As we automate more and more of that rote work, I think we’ll elevate the role of all levels of audits.”

Besides moving young auditors to more interesting work faster, he added, automation may pave the way for new ways of training staff. “When I started at the firm, I spent most of my first year managing confirmations,” he said. “I will tell you that after the 50th confirmation, I had it down — and I did tens of thousands of them. Yes, I paid a lot of dues, but I didn’t need to do that many to really understand it.”

Young auditors of the future may learn using something like the “Watch one, do one, teach one” method that’s used with medical students. “You get taught, you see it, and then you do it,” explained Raphael, who learned the concept from his wife, who is in medicine. “You take intense learning, you then watch your mentors do it and how they react, and then you start doing it. It doesn’t have to be a multiyear thing; depending on risk and the circumstances, it can be accelerated. I think people want that, and I think that’s going to help as we think forward at what the profession can be, because that’s going to get people excited to want to go through that learning curve.”

What won’t change

Leaders in the field, it should be noted, are uniformly excited about the changes that they expect to see in auditing in the next 10 years. They expect that those changes will create a more interesting, rewarding profession for auditors that also delivers a more valuable product to customers and to society as a whole, where technology has driven out grunt work and enabled more incisive, efficient audits, and where assurance is sought across a much wider range of human activity.

However, they also hope and expect that a few things won’t change.

“In 10 years, you’re not going to see technology replacing auditors,” said Lindsay. “Certain aspects of the audit will be and currently are benefiting extensively from technology, but you’re always going to need the human element of the skill set of the public company auditor — the skepticism, the objectivity — those types of attributes will not be replaced by technology.”

And PwC’s Bricker succinctly laid out what he hopes won’t have changed in a decade: “The importance of people, the importance of highly skilled, very passionate people who are committed to high-quality information, who have a sense of purpose. That’s what I hope hasn’t changed in 10 years.”