Sue Coffey, CEO of public accounting at the AICPA, shares the latest trends and newest developments in this fast-changing corner of the profession, and looks ahead to what's next.
Transcription:
Dan Hood: (
Welcome to On the Air with Accounting Today. I'm editor in chief Dan hood. You know, the world of audit is undergoing enormous change these days with so many new opportunities and new technologies showing up all over the place. That can be hard to keep up with it all. Fortunately, today we have with us Sue Coffey, the CEO of public accounting at the Association of International Certified Professional Accountants. She's going to bring us up to date on everything that's going on in the world of audit. Sue. Thanks for joining us.
Sue Coffey: (
Happy to be here, Dan.
Dan Hood: (
Excellent. Well, why don't we dive? Right. So what are, what are the biggest developments you are seeing around audit at test all that sort of core section of the profession? That's that's seen a lot of ferment, a lot of change.
Sue Coffey: (
Oh God, tremendous change, obviously so much going on, never a shortage of issues in this. What I would say a top growth area. In fact, I think your recent survey on this recognized at, as the number two growth area among the Top 100 Firms. So I love the fact that you're doing that, surveying on an annual basis. And I love the fact that it it's up there in the top three.
Dan Hood: (
Absolutely. Yeah, it is, it is huge across like wide range of firms, particularly larger firms, but yeah, they all see growth there, all reporting that as a, as a, an area where lot's going on. So what's, uh, uh, other than that growth, other than that continued growth, right? It's been a big part of the profession forever. Um, what, what new developments are we seeing?
Sue Coffey: (
So, you know, a couple of things and I kind of like to break it out into, um, the financial statement audit of course, assurance beyond the financial statement audit, and then just kind of a couple of other, I'll say things that are going on that are impacting the audit practice and right. So, you know, like when I think about the financial statement, audit quality and you know, of our trusted foundational service is probably always one that I like to start with and, you know, cuz we've had issues, um, and challenges in the past and as a profession we've invested significantly in quality over the last, you know, seven, eight years and we've made significant progress. You know, we made, um, we used the peer review process to kind of understand what was going on there. And I think we finally got our arms around the areas that we're creating some challenges and, you know, getting firms that the, the resources they need in order to tackle them.
Sue Coffey: (
So I feel really good about that. Talent and skills is kind of another area that's, that's always around, you know, obviously with the talent shortages and making sure that we have, um, the individuals in order to do the work that have the right skills and competencies to do, you know, quality job is super important. And so we're highly focused on that. Um, and then something you and I have talked about, um, continuously over the last couple of years that the use of technology in the audit and you know how to bring things like artificial intelligence and RPA and data analytics into the audit to create efficiencies, you know, a more effective audit and really make the audit more strategic and then thinking about how we reimagine methodology in light of those emerging technologies. So there's so many interesting things going on just in the financial statement audit right. Space. Not to mention assurance beyond financials.
Dan Hood: (
Yeah, yeah, no, it's crazy. I, I, I, I always like to mention that, that, or here, talk about that, uh, the improvement effort over the past eight to 10 years or how long it's been, because it's, um, it's sort of a great fundamental explanation or, or indicator of why there is that tremendous trust on audit profession, right? Saying, no, one's coming to us and saying, Hey, this is wrong. You gotta fix it. It's just an internal effort of saying we can make this better. Right? The, the service and the, the, that we're offering the assurance we're offering, we can make it better. Uh, you know, I know the, the, the a I CPA has been playing a huge role leading that role in, in, in bringing improvement to, to the whole area. So it's always worth reminding it. And it sort of explains again why that, that tremendous trust trust in the profession, that technology thing I wanna talk about where there's some specific technology I would like to talk about more particularly the, uh, the dynamic audit solution.
Dan Hood: (
That's, uh, that's under development for the last several years. We're gonna see it soon fingers crossed. But, but before we do that, I wanna talk about that, that beyond the financial statement, she said, cuz there's, that's a, that's a very high profile area, this, this, uh, particularly the last year or so though it's been gone on for a while. And a lot of that revolves around, I'm sure the flagship for that is ESG environmental, social and, and governance, um, ATEST services, but there's lots of other areas in that involved. Maybe we don't yeah. Sort of take a, a high level view of what that beyond financial statement auditing looks like, and then maybe we can dive down into some of particularly ESG.
Sue Coffey: (
Yeah, great. Yeah, sure. And so, you know, I guess I'll start out, um, with, so, you know, technology and, and just the use of technologies within businesses has really created an opportunity for the profession to do advisory work and assurance work on those technologies. Um, and we've been at it for a lot of years now. I mean, I'm thinking back to when, um, we created, so, you know, SOC one, which was the shift from SAS 70 to SOC one, right? And then we very quickly introduced Sox two and three, which are around security, privacy, confidentiality, processing, integrity, and then that, you know, morphed into, so for cyber security, which is one of those areas that, you know, individuals in business, business owners, CFOs, you know, CEOs, um, our members and beyond our members are really worried about cyber security and, you know, the impact it has on their businesses and the things that they need to do in order to get their arms around their cyber security risk management efforts.
Sue Coffey: (
And we have an incredible role to play in that. Right. We have a cyber security risk management framework that we developed a couple of years ago with experts in the field, as well as practitioners that were on the cutting edge in this area. And that can be used by the profession for advisory services for reporting purposes, and then ultimately assurance. So there's a lot of great resources out there for that, but even just more foundational. So in general, I mean, SOC two, SOC one and SOC two are just exploding. Um, we did a survey about a year ago and it particularly in SOC two, we were seeing 50%, um, growth year over year in many firms. So it's just a huge opportunity because everybody's worried about security. Everybody's worried about privacy. Everybody's worried about confidentiality of information, that's the foundation of those services.
Dan Hood: (
Right, right, right. Well, and it's, it, it brings up the, the fact that as you go beyond what profession has been focused on the financial statement, uh, for a long time, but really the, the, the sort of, uh, the tools and approaches and methodologies that, that they bring to that can easily be applied to sort of anything else. Um, so's great example. Um, one of the big ones we're hearing a lot about though, is I said, is ESG services maybe talk about, uh, uh, what you see there and, and, and maybe how, how firms should be thinking about ESG services when they, when they look in that area.
Sue Coffey: (
Yeah, sure. So ESG, I, I, I'm very excited about ESG on behalf of the profession. And when I think about it, I think about it in, in two separate ways. One is that it's kind of one of those topics, whether you kind of agree with the concept of ESG, you know, it's highly political, we've all read a bunch of articles about it, you know, about how Washington is perceiving this and, and whatnot, but it doesn't matter whether you, you know, think it's the best thing since sliced bread, it's gonna be the savior of the world, or you think it's hogwash. The profession's role in this is important and, and very, and, and it needs to be significant. And the other is that the younger generation, um, loves this. And again, it doesn't matter what area of the country you're from. They see this as something that they wanna be involved in because it impacts it, it impacts their world.
Sue Coffey: (
And it's, it's a, it's a great topic for us to use as a recruiting tool, candidly. So I kind of look at it from two different perspectives. Yeah. And I know you're asking me the question as it relates to, you know, a test assurance and even advisory, but I, I have to put a plug in for that, because I think the real miss for firms, if we don't start thinking about it in a couple of different ways, but you know, on this one, you know, the world has the rest of the world has been addressing this area for quite some time now. And they they're way ahead of us, which I think is okay. And when you think about kind of what's going on in the United States here, it's the issue is being very publicly driven by the S E C and by large private equity.
Sue Coffey: (
Okay. And, and as I mentioned, um, it is a political hot potato, but what I think a lot of people are missing is that it's also being quietly driven by the broader marketplace. So for example, lenders are starting to ask about ESG topics and they're making lending decisions based on, on those answers rating agencies are starting to ask state and local governments for ESG criteria again. So like, if you're, if you're, if you have a client that is a state or local government odds are, um, those governments are gonna be asking you for assistance on this. If you have a client that's in a supply chain of any type, I'm sure there's already reporting that they have to do now, and that's only going to grow. And then of course, if you think about it purchasing habits of the younger generation or kind of changing the game completely.
Sue Coffey: (
So when you think about that, you know, setting aside, what's going on in DC, what's going on with the S E C we're in this, right? We are so in this. And if you think about the things that the businesses have to think about, it's the internal controls that produce the information, it's measuring the information, it's the internal reporting that needs to be generated for, you know, useful decision making it's transparent and comparable, external reporting, and then it's assurance, right? And that's like, so our space, and we cannot seed that space to other service providers. And a lot of that revolves around advisory work. Um, assurance is only one piece of a much, much bigger picture. The assurance is significant, but it's a, it's only one piece of a much bigger picture,
Dan Hood: (
Right? Well, I there's, that's fantastic. There's a great description of the whole thing, which is great. And I love the point and, and it's worth reading, right? This is a pipeline filling, potentially pipeline filling issue. And that's always worth saying, right, freshen needs people. And if this can draw people in who cares what the politics are, uh, young people care about it, but it's also market demand. Is there. I, I saw a fascinating thing in time where they traced the appearance of words related to ESG topics in sec filings over the past decade and companies themselves. It's just a tremendous uptick in just their references to things like climate change and how it's gonna impact their business. And, and it's, again, it's not a political issue. It's just, this is gonna affect our business or it's not, or however it may be. So there's, there's a lot there, but as you say, and this is a, a sort of leads beautifully into my next question, which is, it's talked about a lot as an attest possibility for the profession, which is a natural fit for the, for the audit profession.
Dan Hood: (
But given the, the stage of things, uh, given a lot of this stuff is very new for a lot of companies. Reporting is very, I dunno, chaotic, maybe isn't the right word, but it's varied. Let's put it that way. Right. Who's reporting what is very different from place to place. So there's a lot of, uh, it's not just a question of going in and attesting to, is the reporting correct? As you said, some of it's a question of setting up the reporting, so there's an advisory potential there. And I wonder if, if you have any thoughts on like, how firms might approach their thinking about, do we wanna be more attest, focused, more advisory focused, both, but obviously for different clients, uh, you know, how, how should they be thinking about that?
Sue Coffey: (
Yeah. I think it's a progression and I'm kind of, I'm a, I'm always in the camp. Like, don't go, halvesies on anything. Like, if you're gonna get into this space, you're either all in or you're all out because dabbling never bodes. Well, you know, and so think about the entire picture. And I would think about, um, advisory as well as assurance because you can't really, you can't really do the assurance unless an entity is mature enough in their reporting. Right. And so starting with advisory and thinking about controls, cuz this is our sweet spot, right? Thinking about the controls that need to be in place and you know, how to help the measurement. And, and by the way, you know, we, we are a profession that knows when to bring in specialists. I mean, we we've been doing that forever since the beginning of time.
Sue Coffey: (
Yeah. Yeah. In order to support the services we perform for our clients. And so there are a lot of things that you're gonna need to partner with, uh, partner with other organizations on, or, or bring in specialized talent into your firm to do this. But this is just, it, it's one of those things where, you know, we, we have the skills and the competencies where we might not have certain skills and competencies we can bring in specialists and help with the measurement of things, you know, help with developing that internal reporting that actually helps the business make decisions. So I kind of see it as a progression, you know, advisory is a big part of it. And at some point in time assurance becomes a big part of it.
Dan Hood: (
Gotcha. Yeah. Cause hopefully, I mean, we're already seeing consolidation among standard centers and among frameworks and stuff like that. Hopefully in, well, I would say 10 years, but everything's much faster than I think it's gonna be so probably five years, maybe then you reach that point where yeah. You, the advisory is much less important than the, the, um, uh, uh, the actual test work that we'll be doing forever. I, I wanted to, to just jump back to a point you made without dabbling. Cause I, I remember, and it seems like a really important one for, for, particularly for smaller firms that remember at some point, and I can't remember what type of audit was, but it was a report from the a, I C P a that said, where do we find the most errors? And again, it was for a particular type of audit, but I don't remember cause it whiles back and there, the answer was it's people who dabble it's people who do one or two of these audits a year, that's where you're gonna find sort of the biggest mistakes as you say, it's better to go all in and really know what you're doing and do a lot of them.
Dan Hood: (
Uh, cuz then that develops your expertise, uh, along with your reputation and so on.
Sue Coffey: (
That's absolutely right. And, and it was audits of employee benefit plans and I'll throw single audits into there as well. But you know what, Dan, it wasn't a small firm, large firm issue. Oh, okay. It, it was truly a firms. There were a lot of large firms that were just doing onesies and twosies as well as a lot of small firms that were doing onesies and twosies. And I think as a result of our enhancing audit quality initiative, we really did raise the level of awareness of you need to, you need to be, you need to build a business, right. Um, in order to have a quality practice area. And there are some firms that went, went all in and said, I'm really gonna develop my business and really did develop their business. And there were some firms that decided they were gonna get out of those areas of business because they weren't quite prepared to invest what they needed in order to make it sustainable.
Dan Hood: (
Gotcha. I'm glad you correct me. Cause I, I, I unfairly maligned to small firms. I apologize to them. Uh, but, but, but yeah, but right. I'm glad you clarified. The main thing is if you're gonna do it, do it, uh, otherwise don't dabble cuz you're likely you find someone else. There's some accounting firm. You probably know down the block, send that business to them or commit to it yourself. Um, we can spend a lot more time talking about, uh, ESG and nonfinancial statement type services, but there's a, an area I wanna jump to about DAS. I mentioned at the top. Uh, I wanna talk about that in some details. We're gonna pivot to that, but first we're gonna take a quick break.
Dan Hood: (
All right. And we're back with, uh, Sue coffee from the a, I C P a talking about everything new in audit. Uh, so we're got another 17 hours of podcasts coming, cuz there's a lot going on. No, I'm kidding. We won't take too much time, but I did want, I did wanna pivot to, uh, to talking about the Dyna we've you mentioned, we talk about technology and audit in the audit space a lot the last several years have seen, uh, I think, and this is just my characterization of it. Uh, just an explosion of new technologies, uh, and new players bringing technologies to the audit space. One of the biggest ones is the DAS, the dynamic audit solution project. Um, that's being run by, uh, the a, a I CPA and CB com and a consortium of firms. And, and, uh, CaseWare I think is in there as well. It's been, we've talked about it here before, but maybe for those who aren't familiar with it, you could tell us a little bit about that project sort of at a high level.
Sue Coffey: (
Yeah, sure. Thanks. And, and you got all the players, right. So I, so I appreciate that. Um, so yeah, you know, we, we ventured down this path, um, in to develop the dynamic audit solution, which is a technology based tool, but foundational is reimagining methodology completely differently based on these emerging technologies. And, and we decided that we were gonna go down this path based on conversations that we had with, you know, the top 100 firms, um, who really wanted to take advantage of this. And, um, the considering the way to do it was in a consortium, um, type process. Um, and it's been really exciting because, you know, starting out with a fresh piece of paper and thinking, how would you do the audit completely differently is really exciting, but it's also really hard and it's been, it's been a labor of love, but it really actually, it really has been a labor of love and it, it is really exciting.
Sue Coffey: (
And, um, over the course of the last few years, we've had starts and stops and, and we've advanced considerably. And it is really exciting because later this year we're going to be launching our first true end to end audit solution. It will support, you know, the audit from start to finish, but we are only launching it with a limited group of firms, you know, a sub, a subgroup of the firms that we've been working with and on, um, a, a limited number of engagements and types of engagements. And that will help us finalize some of the things we need to finalize for a more, um, broader release to the rest of the profession, uh, next summer.
Dan Hood: (
Gotcha. Excellent. That's good to know that timeline, you know, it's interesting because talking to a lot of people recently, one of the things that's become clear and clear, uh, more and more clear is that the first I'm gonna say 30 years of, of computer technology being brought to the profession, uh, a large part of what it saw was the digitization of paper processes. We took what we did on paper and we put it on a computer. So it was on a screen, uh, as opposed to saying, can we reimagine this because of these new capabilities? And I think that's sort of, one of the cores of DAS is, is saying, we're not just gonna digitize the paper process, right. We're gonna use the technology and say, well, how would you do it if you just started with this technology? That's a fair, I think I've heard you guys describe it that way. Is that right?
Sue Coffey: (
Yeah, that's exactly right. And, and the way we're the way we've been designing this is it, um, it's all based on the richness of the data that we bring into the system and how that data assesses risk a much deeper and rich assessment of risk. And then based on that risk assessment, a serving up of recommended procedures, um, to actually guide the auditor and using that same data pool throughout the course of the entire audit and then, um, using the system to essentially document evidence and assess when enough is enough. And so we are, and this won't be available for our first commercial release next year. Um, but using scoring engines, so scoring engines that will score certain risks that will score certain procedures that will score certain amounts of evidence. And so very, very richly designed to leverage the capabilities that technology brings into the audit.
Dan Hood: (
Gotcha. It's gonna be neat. I mean, and I, I, this is one, I have a question I haven't really ever, uh, thought to bring up. Does everyone in the consortium sort of imagine this as a, as an iterative sort of thing, like obviously we're gonna be releasing it over towards the end of the year with the, uh, I'm gonna call it a beta test. I dunno if you really think of it that way, but you know, in a limited release and then to, to more people next year, do you see over the, you know, the next three years and five years coming out with new versions or new updates to it, or is there a schedule for that? I mean, I'm
Sue Coffey: (
Not a, yeah. I mean, the idea is that we'd, we'd have a large release once a year, like right after visit season to give, you know, firms the time they need in order to incorporate, if they're, whatever those major changes are into the systems for the next audit season, but also releases throughout the course of a year. So for example, industries, as we add industries, certain industries into the, the base product, those will just come out as those industries are available. So yeah, so one kind of a larger one on an annual basis, but then releases throughout the course of any one given year.
Dan Hood: (
Very cool. Cause that is right. That's the new models. Things are changing so quickly. We need to keep up with it.
Sue Coffey: (
That's exactly right. and standards, new standards come out and everything like
Dan Hood: (
That. Yeah. Well, and new technologies and we're hearing, you know, seeing all kinds of concerns, one about the quality of data as people go, you hear this in the AI space, right? People talk about AI's great. We can do all kinds of things with it. If the data is good and we're suddenly discovering that a lot of our data isn't actually that good, right? It's not that clean, it needs to be scrubbed. It needs to be reformatted. Um, so you can only imagine this tool getting more powerful as it, it interacts with corporate data. And we start saying, well, we need the corporate data in this form, or this is how companies should be keeping their data if they wanna be audited in or not.
Sue Coffey: (
Yeah. That, that's absolutely right. And if you think about it, um, making sure that data is clean and it's appropriately tagged. And so that, that first initial, you know, bringing the client on and converting, you know, pulling in the data and making sure the data is clean is critical. And, and candidly, that would be the case in any tool. Sure. You know, that new tool that, that affirm migrates to cause you know, it's, it's just foundational to your, your initial work.
Dan Hood: (
All right. Well, and I mean, one of the things you hope is that, um, over the next, I, I, I keep, I, I just imagine 10 years, but it's probably much shorter period of time that everyone will start to realize our data standards in for every application, as you say, just need to be much better because we're building all these tools around data. Uh, and now again, not just in audit and all kinds of areas, uh, we're building tools around data and then discovering what the data is kinda
Sue Coffey: (
That's, that's exactly right. Kinda.
Dan Hood: (
But once we get that fixed, everything's gonna be great.
Sue Coffey: (
That is the best, the golden ticket
Dan Hood: (
Uh, that's awesome. Well, this is, like I said, we could probably spend another 17 to 18 hours talking about all these topics, uh, and more because there is, uh, it really seems to me like there's just so much more going on over the past several years audit than in the previous years and years combined. Uh, maybe just an impression, but very exciting stuff. Uh, Sue, I wanna thank you. Is there any final thoughts you would give people about auditing anything thing that you would highlight for people to really be, uh, paying attention to?
Sue Coffey: (
Yeah. Other than I, other than what we started out with that this, um, continues to be a significant growth area. Um, and that I, you know, the financial statement on it being foundational, but that level of trust that opens up is so the opportunity for so many other services.
Dan Hood: (
Yep. Yep. And it is, as you say, I think you said it's the, it's the professions opportunity to miss, right? If it's, it's their choice, you get, you get to first dibs at a lot of these particular ESG, so services, uh, it's theirs to lose to somebody else if they want to take it. It's it's ready for
Sue Coffey: (
Exactly.
Dan Hood: (
Awesome. All so coffee of the a I CPA, thank you so much for joining us.
Sue Coffey: (
Thanks Dan.
Dan Hood: (
And thank you all for listening. This episode of on the air was produced by Accounting Today with audio production by Kellie Malone. Rate or review us on your favorite podcast platform and see the rest of our content on accountingtoday.com. Thanks again to our guest. And thank you for listening.