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Transformation of the audit goes beyond simply automating rote tasks, as Amy Pawlicki, vice president–Assurance and Advisory Innovation at the Association of International Certified Professional Accountants, explains in this episode. She details some of the ways that audits can be more data driven while still complying with standards. The interview with Pawlicki is part four of a series on audit evolution in action. Here are links to the previous three parts:

• An introduction to the topic, including the key drivers of the transformation
• A closer look at audit data analytics with two firm leaders.
• The importance of "digital mindset" in audit transformation.
• Also, get caught up on several news items covered recently by the Journal of Accountancy:
  • Paul Bonner's articles on the Biden administration's proposed budget for fiscal 2023 and a TIGTA report about IRS inefficiencies.
  • Jeff Drew's coverage of a proposal by the AICPA's Auditing Standards Board.
  • Ken Tysiac's article on not-for-profits working against the clock on implementation of FASB's lease accounting standard.
• What you'll learn from this episode:
  • Pawlicki's definition of a data-driven audit.
  • How a data-driven audit can help identify and manage risks.
  • An overview of the Dynamic Audit Solution (DAS).
  • Why Pawlicki says that automation is "one small piece" of audit transformation.

Transcript:

Neil Amato: Welcome to the Journal of Accountancy podcast. This is your host, Neil Amato. In this episode, we have part of a continuing series on the transformation of auditing and the opportunities in that realm. We will also share coverage related to a report on IRS processes, a proposal by the AICPA Auditing Standards Board, and more news. That's all coming up after this brief sponsor message.

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Amato: Welcome back to the Journal of Accountancy podcast. This is part four of an ongoing series on the podcast. The series is about audit evolution in action. Today's guest is Amy Pawlicki. Amy is the vice president–Assurance and Advisory Innovation at the Association of International Certified Professional Accountants. Amy, thank you for being on the podcast. First, why in your mind does the audit need to be transformed? What specifically about auditing needs to be transformed?

Amy Pawlicki: Whenever I talk about this topic, I like to address it more in terms of the opportunity than the need. I think firms are out there today performing quality audits every day, and that's great. They're also making a lot of progress in terms of utilizing new tools and integrating data analytics and other opportunities into the process to help them continuously adapt audits and leverage technology. But I do think there's a tremendous opportunity to go further than we've gone today.

When you think about the audits that are done today and the methodology that's used today or followed today by most firms, much of it was developed many years ago, long before firms had access to the technology that they have today in terms of computing power.

By computing power, I mean, processing power, the ability to use large quantities of data, analyze large quantities of data, and also storage. We didn't use to have the cloud storage that we have today. That represents a tremendous opportunity to transform methodology, to take advantage of and maximize what technology can do for us today.

Amato: You touched on those technology advancements and some of the opportunities they present. What are some of the opportunities in the area of client expectations and then also on the staffing and skill set front?

Pawlicki: To me, I think a lot of people maybe view this as a challenge, especially in terms of what's needed from a staffing perspective, but I actually think it's one of the most exciting things about the potential to transform the audit, that we can do a better job of supporting clients and client collaboration and the client experience through the audit by having more efficient connectivity and communications with the client throughout the process of the audit.

It's no longer the days where you're going into their office and holing up for weeks on end and going through file cabinets. The audit is done very differently today, and thank goodness, as we've gone through COVID, for example, that we have the ability to do remote audits where necessary, again, using technology. But it's not just a matter of being able to be remote, it's a matter of making the process more efficient and enjoyable for the clients.

Also in terms of the auditor experience, those same benefits that accrue to the client can also accrue to the staff auditor conducting the audit. We are hearing from a lot of new auditors entering the field that they really enjoy the incorporation of things like audit analytics into the process that enable them to dig deeper and to add more value and insight to their clients.

That's something that, yes, it requires additional analytical skill sets above and beyond what an auditor would have traditionally had, although I would argue auditors have always had statistical backgrounds that lend themselves to analytics. But today, definitely those needs are deeper. But I think that's also more exciting to new and younger auditors coming into the profession to actually attract them to the job and make it more exciting and something that they're more interested in pursuing from a career perspective.

Amato: In a pre-call, you said, "Most firms' methodology is checklist driven, not data driven." What do you mean by that?

Pawlicki: I think a lot of firms, as they're starting to incorporate data analytics into audits, they're trying to get to a place that is more data driven. They're trying to actually use the client data, and sometimes, in some cases, even external data, to help them understand risks with their client.

Historically, firms got to a place where they were more or less following the same approach as last year, you'll hear the term SALY, which means same as last year, where they would pick up last year's file, look at that, and then look at this year's data, and try to figure out if anything has changed. But that's not really a truly data-driven approach where you're bringing data analytics into the process from the very beginning, from risk assessment, even from the perspective of understanding the entity and its environment and using that data throughout the process repeatedly in an iterative way.

You're not just going through each phase of the audit in a linear way using data analytics in a particular spot and not in another spot. What we're trying to get to is a place where you're doing procedures throughout the audit to assess risk and respond to risk, and part of that is the integration of data analytics. Data analytics are essentially a set of procedures that you can use to understand what's happening at the client. That is really what we're driving towards and what we mean when we say data driven. I think a lot of people look at the audit as something that's compliance driven.

We are certainly all for doing an audit in compliance with the standards. The spirit of the standards and the objectives of the standards are right on point in terms of helping you to deliver a quality audit. But you can't achieve that through a checklist. You actually achieve that by doing things that help you identify and respond to relevant risks. That really is the focus of what we're trying to accomplish through the Dynamic Audit Solution, or DAS, which is a technology-enabled tool that the AICPA is working on together with CPA.com and software provider CaseWare to help actually enable a technology-driven methodology in a workflow tool to help auditors implement that new methodology.

Amato: You use that word "methodology," you use the acronym DAS, Dynamic Audit Solution. What's different about the Dynamic Audit Solution methodology?

Pawlicki: A second ago, I just talked about the focus being on relevant risk, so not just the risks you saw last year. There may be some of the same risks that were in play last year, but there might be different risks. Things might have changed. You might have different suppliers, you might have a different customer base. There are lots of things that can change.

When you think about the COVID, post-COVID world that we live in today, supply chain is a huge issue. There are likely risks that have come into play as a result of that that weren't there last year or two years ago or three years ago. The focus of DAS is really on risk identification and assessment. What's different about DAS is instead of just thinking about risk at the assertion or the financial statement, line-item level, DAS looks at risk at the individual risk level. That is essential for really understanding and honing in on and doing assessment of what are the most relevant risks and responding to those risks. That is different and it does require a little extra work on the front end in terms of identifying individual risks.

But what it enables down the line is that truly data-driven audit where you are analyzing and responding to risks at the individual risk level. And as you're learning things throughout that data-driven audit, you're able to dive deeper and deeper into the areas where you see potential risk. You're truly using the data to drive auditor actions and steps throughout the process.

Amato: What do you think is different about DAS from other solutions as far as how it will benefit firms and clients?

Pawlicki: There's a couple things that are different. Well, probably more than a couple. There are a couple primary things that are different about the Dynamic Audit Solution, and truly different. First of all, there are a lot of great apps out there today that help auditors with certain aspects of the financial statement audit.

For example, there are great analytics tools. Many of them are starting to incorporate machine learning. Many of them incorporate technologies like robotic process automation to help automate rote or repetitive tasks so that humans can spend their time on the higher value, more analytic activities. Those things are all super important. They're all super valuable.

But DAS isn't just about automating what we've always done. It goes further to maximize the potential of technology to add additional value and bring additional insight to the audit and really enhance audit quality. That's a major difference. Not just automation, but actually transforming how we go about conducting the audit to really drive quality. Certainly, automation is part of that, but it's one small piece.

Another thing that's different is that most workflow tools, which DAS is a complete end-to-end audit workflow tool, don't incorporate these other apps that support things like data integration, data ingestion, and export. If you're trying to actually bring in data to analyze it, you may need a separate app to help you with that process. DAS is being built to help facilitate that because it's critical to the methodology and to the functioning of the tool.

Another example is analytics. Most analytics tools are sort of bolt-on, where you'll export the data out, do some analytics, bring the information back in, and try to integrate it into your workflow. With DAS, the data analytics are actually procedures that are suggested as you go through the process of the audit. They are legitimately integrated with the workflow in a very direct way, which is very different. The DAS audit workflow tool actually incorporates a lot of these different functions that firms today are having to look to other apps to be able to leverage.

Finally, the most different thing about DAS is that it has a tremendous amount of knowledge built into it to help guide the auditor in completing an efficient and quality audit.

What I mean by that is we are actually structuring and standardizing not only the data that's coming in, client data or external data that's being used for analytics, but also the auditor knowledge that accumulates through the process of actually conducting the audit.

By structuring all that and linking it all together, we are actually enabling the tool to make suggestions that guide the auditor through the process based on what the data is telling them. No one has ever done that before in a fully integrated fashion, and if you think about it, not only is that important to accomplishing a data-driven audit, it's also critical to being able to use artificial intelligence in a really meaningful way.

Specifically, I'm talking about machine learning, where as you build up data and auditor knowledge, eventually, you get to a point where not only are you using auditor insight as part of the process and benefiting from the auditor on the job, you can actually leverage the insight of multiple auditors and multiple audits through the use of machine learning.

You'll never get there if you don't structure the data and the knowledge to that level of specificity, but by building that infrastructure, we enable that bonus of bringing in artificial intelligence down the line, which really amplifies our potential of driving a more efficient and higher quality audit through the incorporation of the artificial intelligence and specifically machine learning.

We don't need that right away to benefit. Even from the earliest versions, that knowledge and that integration will benefit a guided audit. But again, once you build that infrastructure, you have the potential to amplify that benefit exponentially over time.

Just like if you think about the way that artificial intelligence has been used in other professions, like the medical profession. A doctor only has the benefit of their own experience, but through the use of a tool like Watson, you can benefit from the experience of thousands of doctors and thousands of diagnoses to better pinpoint what an appropriate diagnosis might be.

We have the same potential for the financial statement audit, but we can't get there unless we have structured standardized data similar to what you might see in medical files historically, which is why that profession has been enabled to use artificial intelligence so effectively.

Amato: That's a really good comparison. Amy, thank you very much.

Pawlicki: Thank you so much for having me. This is one of my favorite topics to talk about. After many years of having worked on it, I am super excited to see all the progress that's happening in the industry among firms and especially with the work that we're doing through the Dynamic Audit Solution.

Amato: In other news, Paul Bonner of the Journal of Accountancy has coverage of a recent report that takes a closer look at IRS processes. The pandemic and changes to laws were primarily responsible for the IRS failing to meet timeline standards for a majority of taxpayers' cases last year, but it was inefficiencies in staffing, equipment, and procedures that also made the backlog worse. That's one conclusion of an audit report by the Treasury Inspector General for Tax Administration, or TIGTA. You can find a link to that coverage on journalofaccountancy.com/news or in this episode's show notes. And the Office of Management and Budget on Monday released the Biden administration's budget proposal for the federal government for fiscal year 2023. Among the provisions in that budget are a higher corporate tax rate, 28% instead of the current 21%, as well as a 20% billionaire minimum income tax on realized and unrealized gains and other income. Visit journalofaccountancy.com for more on that story. Also, the AICPA Auditing Standards Board is seeking comments on a proposed Statement on Auditing Standards that seeks to strengthen the auditor's approach to planning and performing group audits and to improve the quality of such audits. Jeff Drew of the JofA has that story. And, finally, Ken Tysiac has an article on how the wait is finally over for not-for-profits when it comes to implementing FASB's lease accounting standard. According to the article, organizations that have multiple buildings or a fleet of vehicles may face challenges in implementation, especially if they elected to put off implementation until now. That article and all the other content mentioned can be found on the Journal of Accountancy's website. We will also include links in this episode's show notes.

Thanks for listening to the Journal of Accountancy podcast.

• An introduction to the topic, including the key drivers of the transformation.
• A closer look at audit data analytics with two firm leaders.
• The importance of "digital mindset" in audit transformation. Also, get caught up on several news items covered recently by the Journal of Accountancy:
• Paul Bonner's articles on the Biden administration's proposed budget for fiscal 2023 and a TIGTA report about IRS inefficiencies.
• Jeff Drew's coverage of a proposal by the AICPA's Auditing Standards Board.
• Ken Tysiac's article on not-for-profits working against the clock on implementation of FASB's lease accounting standard. What you'll learn from this episode:
• Pawlicki's definition of a data-driven audit.
• How a data-driven audit can help identify and manage risks.
• An overview of the Dynamic Audit Solution (DAS).
• Why Pawlicki says that automation is "one small piece" of audit transformation.

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.”

The last great revolution in auditing — the foundation of the modern public company audit in the 1930s — was driven by regulatory and legislative fiat reacting to the massive market irregularities and frauds that helped trigger the Great Depression. With the field facing mammoth changes once again, the question remains: What’s driving the revolution this time?

In looking ahead at the next decade, experts in the field point to two main drivers of change in audit: technology, which is giving auditors incredible new capabilities to measure risk and find irregularities, and — particularly in the long term — market demand for more and faster assurance around a much wider range of activities.

The impact of technology is, of course, already being felt, and will continue to be felt on several fronts.

“I think that in the next 10 years, you’ll see even greater advancement related to how businesses use technology in their business, and then how we use technology to audit business as well,” predicted Heather Paquette, national technology assurance leader at KPMG.

In other words, the new tools that clients are using will shape the audit as much as the new tools that auditors themselves are using. As an example, CPA.com president and CEO Erik Ageirsson noted corporations’ ongoing migration of their data onto cloud-based systems and platforms — where auditors will be able to have better access to both the data and the source systems that produce it.

And while much of the focus in applying technology to auditing in the past has been about making previous methodologies more efficient and more effective, the next decade will see technology changing the methodologies themselves, Asgeirsson explained.

“You need new solutions to truly drive new ways of doing things, and with these new capabilities — be it a data-driven audit in the cloud, or access to all this information — you then need to step back and rethink how you want to go about providing this service,” he said, citing the forthcoming Dynamic Audit Solution as a prime example of rethinking and reimagining the audit in response to emerging technological capabilities. “Until you have those new solutions, most of the marketplace won’t go to new ways of working, even though they probably could, leveraging previous solutions.’”

Because digital systems such as blockchain will become more and more important to businesses and the way they operate, Asgeirsson said that auditors will be called on more and more to attest to the quality of the configuration of the systems themselves, not just to the quality and accuracy of the data they produce.

Handling that kind of assurance, as well as all of the other tech-related changes coming to the field, will call for new kinds of auditors, and firms are already beginning to adjust their teams.

“We’ve brought nearly 1,100 technology professionals into our audit practice,” said KPMG’s Paquette. “We’ve also upskilled more than 1,500 of our audit professionals on auditing technology, and we have trained more than 4,000 professionals on using data and analytics and other automation as part of the audit.”

For all the complexity that new technologies will drive, and for all the change they’ll require of auditors, the upside will be significant, according to Wes Bricker, vice chair and US Trust Solutions co-leader at PricewaterhouseCoopers.

“Technology will make us more relevant, not less,” he said. “It’ll challenge us to build different skills, to not leave anyone behind; it’ll challenge us to stay true to our core underpinnings of ethics and integrity and good independence; it’ll challenge us to keep our standards current; it’ll challenge us to have good methodology that stretches across boundaries; but technology will reinforce our relevance, because at the end of the day, people want to trust in something, they want to trust that the technology is working for them and they’ll want to trust the profession.”

And that need for trust is behind the other major driver of change in auditing over the next decade.

What do markets want?

The audit as we know it has centered primarily on the financial statement, and its scope and focus have been determined largely by regulators — but both of those will shift significantly in the coming years, as markets and society as a whole directly demand information on a much wider range of information than ever before.

“There’s a whole new philosophy now on enterprise-grade and investor-level disclosures of data that’s not core to the financial statements, and I think that will become equal to if not even more critical over the next decade in terms of the scope of what an auditor does,” predicted Jon Raphael, audit and assurance national managing partner — transformation and assurance at Big Four firm Deloitte & Touche.

Auditors will be called in to bridge the gap between what companies are reporting and what markets and investors and the public want to know, in areas ranging from human capital and diversity, equity & inclusion to cybersecurity and data privacy.

“All of that is a spectrum of things that an independent service provider can provide insights on to stakeholders of companies,” Raphael explained. “In enterprise value thinking, there are key performance indicators and non-GAAP performance measures, which I think more and more there’s going to be interest in knowing. They’re part of the value of the company, clearly, so can procedures be performed on them as well?”

Some of the call for assurance on those non-financial measures may well come from regulators — witness the recent proposals from the Securities and Exchange Commission regarding climate disclosures — but more and more they’ll come from fast-moving markets.

“Audits of historical financial statements today really don’t move markets,” said Al Anderson, the founder and president of AccountAbility Plus. “It’s been years since they have, and sometimes I question whether they ever did — but media is moving markets and instant information is moving markets, so what we need assurance on is things surrounding that instant information society that we’ve been living in.”

“We know that investors, when they’re interested in something, they value assurance on it,” added John King, vice chair of assurance for the Americas at Big Four firm Ernst & Young. “My perspective on this has always been that we want to be of value to investors and of value to our clients, and if something is valuable, they will ask us to get in and provide assurance. This is not a business where you have to go out and try to generate new markets for our services. This is really just about following where investors find value.”

As a profession whose primary stock in trade is knowledge, accounting has not traditionally called for the sort of major capital expenditures that characterize, say, car manufacturing or energy production or making semiconductors. According to the conventional wisdom, a firm’s major assets go home every day in the heads of its partners and employees; there isn’t much call for splashing out massive amounts of cash on chip foundries or sprawling refineries, or even on expensive intellectual property.

At most, accounting firms might have wanted capital to acquire another practice, or even to fund a broader acquisition strategy; occasionally, the owners might decide to buy the office building they work in, as an investment. But otherwise, “investment” in the sense of spending money in advance on the assets and tools needed to support the establishment or growth of a business has not been much needed in accounting.

That’s going to change.

Technology will drive much of that change, as it upends all kinds of businesses and creates powerful new capabilities that accountants will want and need to adopt — or to create themselves. Indeed, we already have a good example of one type of that last kind of technology investment in the Dynamic Audit Solution, where the American Institute of CPAs, CPA.com and the largest firms in the profession are investing millions to build an audit platform for the next generation. Not everything will be quite as much of a moonshot as the DAS, but going forward the profession will find itself investing much more in a number of areas:

• Investing in and around technology. The first wave of technology in the accounting profession digitized what firms already did on paper; there was, therefore, something of a limit to the technologies they could be expected to take on board. The next wave, which is already beginning, will see an endless stream of innovations that firms will need to adopt, understand, and often be able to build themselves, both for their own work and their clients. Now it’s robotic process automation, artificial intelligence and blockchain that firms need to invest in; in five years, it will be some completely different list of game-changers.
• Investing in people. It’s not uncommon for accounting firms to talk about how they invest in their staff, and it’s true that this is one area where the profession has made major strides. But it’s going to need to significantly increase its investments as the variety of skills that staff and future partners need expands — and as that variety continually changes and requires updating. Firms may also find that they need to start investing in a range of expensive non-accounting specialists, such as data analysts, coders, business development professionals and subject-matter experts of all kinds; these will not be entry-level hires, and firms will need to support their higher salaries until they begin to pay off.
• Investing in new services. Compliance work is rapidly being commoditized, and the profession will need to develop higher-value-added consulting and advisory services to compensate. Advisory work will eventually be much more lucrative than compliance work, but that may take some time — and firms will need to make investments in the transition. For instance, the partners who lead the charge in these new areas will need to devote themselves to them full-time, which may mean they can’t maintain a regular book of business; the firm will need to support them until the new offerings get off the ground. Acquiring an already-established practice can be a shortcut to profitability, but is in itself a major investment.

All that is a long way of saying that going forward, the accounting profession is going to need to invest in its own future much more than it has in the past. Fortunately, the returns will be greater than they’ve ever been.

CPA firms that would be competitors in any other context are, instead, cooperating, under the guidance of the AICPA and accounting fintech firm CaseWare International Inc., to develop sophisticated audit tools that can bring the profession’s technological revolution to a wider set of practitioners.

Dubbed Dynamic Audit Solution, the project was first conceived in 2018—a year after the AICPA conducted a major review of what the profession will need to navigate the rapidly changing nature of the financial audit. The software, which is slated for release this year, is meant to be a reflection of how the needs of auditors—and the expectations of audit clients—have changed over the years. Susan S. Coffey, AICPA executive vice president and one of the project leads, said, “It’s really about looking at the audit completely differently.”

“How do we really transform the audit, from a user experience perspective, from a methodology perspective and from a technological perspective, and what would be the right way to develop that?” she said, noting that the project is about “transforming the audit, doing it very, very differently and achieving the audit objective by assessing risk differently and performing audit procedures differently and collecting audit evidence differently.”

Erik Asgeirsson, the president and CEO of technology company CPA.com and the other Dynamic Audit Solution lead, said that once the software is developed, auditors will be able to look at the full data set and have anomalies identified by the software through both traditional and visual analytics, which, he said, will allow the CPA to better assess the information and “drill down and understand those anomalies.”

“[It’s] the simple things,” he said. “When you look at the full data set, we think you’ll be providing the traditional audit service and then you’ll be providing additional insights to the client.  … You could look for things like double billing, if you know what the payment should be, [or with] a vendor contract, you could do an analysis on that. So, at the end of the audit, you will provide the opinion as well as additional information that’s more comprehensive than an audit today, due to the capabilities of this robust platform that leverages more data.”

While there is software today that can do these things, Coffey said that the intention is for this software to be a fully integrated platform that can suit all the auditor’s needs, rather than having to switch among several different programs that don’t work with each other at all.

CPA firms were involved in the project since early in the process, mainly through the AICPA’s Major Firms Group—Asgeirsson said that about 30 firms are participating. One is Citrin Cooperman, where partner and audit and attest practice leader Joseph Turkewitz, and chief risk officer and industry managing partner Patricia A. Cummings oversee their firm’s part in this project. This has involved contributing to the project’s strategic vision, providing input on the process, and working with other firms on what Turkewitz said was the question of “how we’re going to facilitate change management for such a large project,” among other things. Specifically, this has involved quarterly strategic meetings, along with numerous committee, subcommittee and task force meetings in between.

Turkewitz said that one of the biggest benefits to his firm will be the integration of many different elements, echoing Coffey in saying that users won’t need to “have 17 different screens open and 17 different icons they’re dealing with.” Auditors using this software will have greatly enhanced data analytics capacity because the process will be directly embedded in the  audit methodology and tools.

But beyond that is the ability for the firm to greatly enhance its data analytics capacities by directly embedding these capacities in the audit methodology and tools, “rather than being something of an afterthought.”

“From a pure procedural standpoint, the traditional vouching and sampling that’s associated with the audit process is, I’ll say, a dinosaur. ... Our processes right now are 80 percent traditional and 20 percent innovative. This will allow us to sort of flip the script on that. We’ll be much more taking advantage of those technologies, so we’re doing a lot less sampling and more looking at whole data sets, and really driving down to where the risk is, so it’s much more meaningful,” Turkewitz said.

Cummings added that this technology has applications beyond the financial audit. She sees not only a tool for audits but also for industry practice, saying that practitioners will be able to fine-tune the software to be tailored for specific industries for client insights. Additionally, it can help integrate processes across various industries to be more consistent across the board and make the audit easier.

These sorts of tools, however, are not necessarily a new invention. Giant international firms have invested millions of dollars in developing software like this as well, and have been using it in their own audits for a number of years now. But these are proprietary systems that are available only in those firms—professionals at other firms can’t buy it as they can tax software.

Cummings said that the product being developed in this project is intended to be an equalizer that can give relatively smaller firms access to these same kinds of tools without having to pour millions of dollars into developing them in-house. She characterized what she called the “global six” as having “unlimited resources, both in terms of dollars and people.” The idea, she said, is for other firms, such as her own, to join with the AICPA, CPA.com and other partners in order to pool their resources so that they can “develop this new transformational process.”

“It’s one of the few times where we’re working hand in hand, arm in arm with firms we’re fiercely competitive with in the marketplace,” she said. “It’s definitely been a game changer.”

Asgeirsson said that the project has been user testing individual modules, like risk assessment, since last year, and by the end of this year, he expects to have a more complete version available for firms participating in the project. That “won’t be the end-to-end solution,” he said, but it “will allow firms to do some testing.” Overall, he said, the project is on track with its goals, and he expects the main commercial release to be sometime in the summer of 2021.