The pandemic has taught auditors that they can do their work remotely. By now, most audit teams have made changes to how they audit, and hopefully, when they make those changes, they are considering the
The pandemic is presenting us an opportunity — maybe even a once-in-a-lifetime opportunity — to radically reshape how we approach audit beyond those 3Cs. Technology on the horizon poses an existential threat to performing audits as we have for the last several decades. According to a
Using a task-based approach to audit is one way to position your firm so you’re ready to move audit into the future. This approach will give your best and brightest team members the time and bandwidth to delve deeply into the services that machines can’t perform. Let’s take a look at how this model works.
Do you need a CPA to do this work?
The traditional model for audit has been the engagement team approach. But are you really leveraging the experience of your team? As an example, let’s consider the tasks that are often part of an audit of cash:
- Perform bank confirmations for cash accounts and place in audit binder;
- Obtain client’s bank reconciliations for accounts with material balances
- Agree confirmed balances to bank balances on reconciliations;
- Consider the possibility of unrecorded interest on savings and CDs if material;
- Agree reconciled balances to trial balance;
- Test clerical accuracy of reconciliations;
- Scan reconciliations for unusual items and investigate if needed; and,
- Scan cash receipts and disbursements near year end for unusual items and investigate if needed.
Which of these tasks actually require a degreed accountant or a CPA with entry-level experience to perform?
If you’re completely honest, you would agree none of these tasks require someone with those skills. So why do we have our highly educated and highly paid professionals perform tasks well below their level?
When you think of the audit process and the workflow, the tasks where you really need a degreed accountant are those that require judgment, knowledge, and business acumen.
At the other extreme, data analytics is becoming a big thing. But do we need to teach auditors to write the scripts? Sure, auditors need to be able to understand the outputs of data tools, but they don’t need to know how to program them. It takes a team to build a good data analytic. You need an auditor whose task is to design the analytic to accomplish an objective, and who knows the business and what the normal ranges for this industry should be. And you need a data specialist whose task is to program the algorithm.
The task-based approach
Instead of the traditional engagement team approach, I recommend that firms consider a task-based approach using specialists. For example, you could create a team of specialists who only handle the routine tasks of auditing cash, and then hand the work off to a CPA for the final analysis and sign-off.
By building out a team of specialists who become experts in data tools or in specific audit tasks, you can solve multiple problems.
First, by building a team of specialists who perform just that one task, you solve the problem of having to train the new people every year how to do it. Because of staff turnover and advancement, the new people need something to do. Every year, the more experienced people have to spend time teaching the new people how to do the routine tasks.
Second, this is a better alignment of skills with tasks. Even if you don’t have turnover, these routine tasks take time. While a more experienced auditor can perform these a bit faster than a brand-new person, the mechanics of the tasks still take time. That means they have less time and mental energy to focus on the areas of risk that require judgment and their specialized knowledge.
Third, this helps with the talent shortage. Experienced auditors get bored with routine tasks and may leave the field entirely. Back in 2015, the American Institute of CPAs estimated that
Fourth, using specialists means we can deploy technology more effectively. We can bring in someone who specializes in data tools as we need those services, and that person can operate fully remotely. This allows auditors to focus on understanding the business, the client and the industry, and not trying to learn how the technology works at the same time.
Finally, standardizing routine and repeatable processes makes it easier to automate those tasks down the road. Ultimately, we’ll be using technology instead of people to do the ticking and tying.
We clearly don’t need a CPA for every task in an audit. These teams can be staffed with people who like doing this kind of detailed, routine work, and who perhaps have a two-year degree in accounting or have training in bookkeeping from a technical school. This can be steady, well-paying work, without the pressures of long hours or complex expectations that most staff auditors endure.
Moving audit into the future
Technology has already made it possible for our teams and our clients to perform their work more efficiently. However, except for using computers instead of paper, audit hasn’t changed much since my first days of field work a few decades ago. Future technological developments will make the ticking and tying and testing we currently do obsolete.
Many of our clients are already embracing technology to change their reporting methodologies. Who will need an audit if the transactions are in a blockchain, or if a bot in the client’s books monitors transactions as they come in? These changes are coming sooner than we think. The disruptors are already out there, and they don’t look like us.
Keeping audit viable in the future isn’t just about changing who does the task, but it’s also about how we do the task, and whether we even continue to do the task. A task-based approach only changes that first part, but it’s a step in the right direction.
To remain relevant, audit will need to move up the value chain to provide clients with the insights, judgment, and business acumen that machines aren’t capable of. We need to transform audit from a near-commodity to a highly valued service that clients are willing to pay top dollar for. But we won’t have the capacity to deliver on that value if our teams are stuck doing work that is far below their skill level.
The younger generations want challenging and meaningful work. They will job-hop until they find it. A task-based approach is a better alignment of their skills and training with their responsibilities and relieves them of the tedious work that chases many great people from the profession. We need these innovative and entrepreneurial accountants if we are going to move audit into the future.
If audit doesn’t change so that it can deliver on that promise of value, the disruptors will step in, and our profession will go the way of the dinosaurs.
