insight magazine

The Audit of the Future Today

The audit needs to become less about compliance and litigation defensibility, and more of an exploration, requiring curiosity and the application of independent judgment. By Laura Hay, CPA, CAE | Digital Exclusive - 2018


For more than 80 years, the financial audit has been a mainstay of the CPA profession, and the endurance of its core elements drives trust in capital markets. While it’s crucial the profession reinforces the quality of its foundation, capabilities are shifting what the service can be for the future and markets are demanding increased value from CPAs as trusted advisors to business.

The audit is evolving to keep up with market needs in areas beyond technology disruption. Markets recognize that CPAs are in a unique position to provide contextual insights to management and external users to help them make informed decisions. Rather than generic pass/fail reporting, users want specific, actionable observations; observations beyond the financial; and future-focused, rather than historical perspectives.

The CPA continues to be an opportunity profession, but to attract the next generation with the skill sets to deliver on this expanded expectation, the audit needs to become less about compliance and litigation defensibility, and more of an exploration, requiring curiosity and the application of independent judgment. Even more significant a shift, the audit of the future focuses on understanding business and how it generates value.

The profession is leading this transformation in a number of areas.

Mainstreaming Technologies

Technologies such as data analytics and artificial intelligence are no longer “emerging,” but are becoming more widely available and accessible for all sizes of entities. These capabilities allow the audit to examine entire data sets and use analytics tools to detect patterns and anomalies.

Business information also is more widely available, allowing the audit to look outside the company’s walls at broader trends in the industry's landscape. Knowledge of developments in regulation, competition, and globalization create a holistic view in which to assess risks and business outlook.

Richer tools require people who know how to implement them. CPAs need the skills to work closely with data scientists, and the profession is exploring how to best employ technology specialists who work closely with CPAs.

Risk Management

Increasing business complexity has heightened the importance of risk identification and gaining an understanding of an organization’s risk management policies and practices. The 2017 COSO ERM framework has evolved our understanding of risk to focus more broadly on risks to value creation, including governance and culture; strategy and objective-setting; performance, review and revision; and information, communication and reporting.

Users and management are requiring more effective communication of the auditor's considerations of risk and the risk environment. Improving the auditor’s understanding of the business, how the business generates value, and skills in assessing risks are important components of a quality audit for the future.

Forward-Looking Information

Accounting information is no longer a historical look back; markets are demanding greater qualitative and non-financial information that provides a context for the future. Integrated reporting is about key financial and non-financial factors that affect the ability of an organization to create value over time.

Assessing the non-financial information most relevant to the business for the future and reporting on forward-looking and non-financial information are the new core competencies for many CPAs.

Professional Skepticism

Markets are expecting CPAs to challenge client management’s assessment of risks and data assumptions and to have sufficient knowledge of the business to do so. This is, in some cases, driving hyper-specialization, with a need for deep industry knowledge on the team.

Communications and critical thinking skills are among the higher order skills CPAs need as identified in the practice analysis that results in the development of the CPA exam. CPAs accept a responsibility to uphold the public trust that requires the exercise of independent judgment. These qualitative abilities are integral core competencies for audit quality for the future.

Greater Transparency

The auditor’s report is evolving to provide greater information on how the auditor reached the opinion. Inclusion of observations on key matters in the audit now will be required for public entities and an exposure draft from the AICPA would make reporting of key audit matters an option for non-public entities.

Providing information that had not previously been reported to investors adds a new layer of complexity and communications challenges. Having sufficient space to provide a complete description of the key audit matter without detracting from the market’s reception of the overall opinion is a balance that will play out in practice as the profession learns how to most effectively communicate qualitative information.

The evolving future of the audit is not just about how changes in technology are disrupting core services. The relevance of an audit is more centrally becoming about how well we understand a business and the risks it faces to effectively design, execute, and communicate the results of the audit and contextual implications for the future. CPA practices are aligning to that change by evolving skill sets and practices to become more integrated and forward-looking and acquiring specialized talent.

While we are still trying to understand how quickly these changes will scale based on business size, complexity and industry requirements, it is clear that all involved will feel the impact. The audit is transforming, and these are a few of the areas in which the profession is focusing on quality.

Laura Hay, CPA, CAE, is executive vice president of the Ohio Society of CPAs. This article is published in the Ohio Society of CPAs’ 2018 July/August issue of CPA Voice.

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