In the history of the audit profession, there have been shifts in how the audit is executed. These shifts have been a result of transformations in the environment in which companies operate, and in which audits are performed. Now the audit industry is facing significant changes as the purpose of audits change, and as we implement the learnings taken from the financial crisis. Whereas an auditor was once trusted to provide an accurate and detailed account of company data without the need or requirement to offer meaning or purpose to that data, now, auditors are increasingly in need of different skills to adapt to new user needs. Our newest RSM recruits are as comfortable discussing machine learning as they are forensic accounting. I’m excited to see the future and we must cultivate these new skills if we are to continue to remain relevant.
The key driver of this change has undoubtedly come from the users of audit data who are demanding an increasingly diverse array of data sources that do not traditionally fall within financial accounting. As a result we are seeing more requests for data related to governance and corporate social responsibilities. For example, data might be collected on the carbon footprint of company movements or information related to employees. This data is then open to users that would not traditionally have use for audit data, such as company employees and partners.
Technological change is also occurring at a rapid pace, ushering in the capability to capture and share data, on an unprecedented scale and almost instantaneously. This has resulted in an increasing focus on data, whether structured or unstructured, and whether generated internally or externally to the entity.
This new demand for data has led to the most critical aspect of this change to the audit industry. Auditors increasingly need to adapt to the changing needs of users and therefore provide meaningful interpretations of data. While many traditional investors would have pored through the financials to make long term decisions, a newer breed of investors is more likely to invest in companies that offer a holistic view of how they treat their employees, manage their carbon footprint and anything that indicates the company is moral and upstanding – a good corporate citizen. Auditing is no longer a transactional reporting exercise; auditors also play a key role in contributing to the credibility of the financial statements on which they are reporting.
Auditors need to provide an even more sophisticated picture of their client’s data and this requires very different skills. The traditional audit model followed a simple process of taking data, analysing it and sharing it. Now we auditors are required to provide a final step in that process – data illumination. This requires a twofold development. Firstly, the auditors of the future will need to embrace technology and the ever expanding array of tools and techniques that advanced data analysis affords them. Secondly, they will need to be experts in data interpretation and synthesise meaning from the empirical evidence. When I think of our newest RSM trainees, their experience will differ radically to my experience.
Companies are increasingly driven and defined by their purpose and we are seeing this at all levels of business activity both regionally and globally. Auditors must go further to make sure they are at the heart of these changes by continually engaging with their clients and moving towards a new reality where they can provide a continuous stream of meaningful information. The one time audit of the year is dying. Now we must embrace the audit of the future.
This article was also published on Accountancy Age.