insight magazine

Inside Finance | Winter 2020

Five Areas of Change as Audits Go Virtual

With virtual audits on the rise in response to COVID-19, it’s time to usher in the age of the remote audit—and prepare for it to remain long after the pandemic recedes.
Nancy Miller, CPA Senior Director of Accounting, Pactiv Evergreen Inc.


Imagine this: It’s spring and your auditor requests a videoconference to discuss progress. You open the Zoom window and see a background of swaying palm trees and a brilliant blue ocean. In 2020, this was likely a virtual background. In 2021, your auditor may actually be in a tropical paradise. The age of the remote audit is upon us.

The technological changes that enable remote auditing have appeared one by one over the last several years but, like so many other trends and innovations, the practice only became common in response to the COVID-19 pandemic. But, like most innovations, we’re unlikely to go back to how we did it before even after health concerns subside. What changes can we expect in this new age?

Communication

Communication has always been crucial in audit, and its importance will only increase as audits go remote. Remote audits will rely on formal communications through email and virtual meetings in place of on-site conversations and informal hallway encounters. Planning and coordination, which have always been very important, will become paramount. Over the next few years, we will need to develop and communicate new policies, procedures, and documentation protocols to facilitate seamless scheduling, secure information access, and timely audits.

Security

Remote access comes with heightened security risks. In addition to the risk of financial loss, remote access creates risks for breaches or leaks of intellectual property, marketing information, personnel information, and information subject to the disclosure provisions of Regulation D. New policies will likely be needed to determine which information can be accessed remotely, how, by whom, and when.

Disruption

Like other technological changes, remote auditing has the potential to bring disruption. Remote auditing may change the calculus involved in determining scope and the locations to include in audit planning. Virtual auditors could conceivably “visit” locations around the country or the globe at minimal cost. This would allow regional audit firms to expand their geographical reach. However, it would also allow national firms to staff and perform audits in more markets without establishing local offices, and to deploy their experts where needed at a low cost. It’s likely that remote auditing will bring as much disruption to the audit market as remote banking brought to financial services. Firms of all sizes should prepare for a shake-up. One positive to consider: Audit firms will be able to staff and perform audits in more areas without the need for employees to spend weeks or months away from home at client sites, which should help with retention.

Professional Standards

During a March 23, 2020 webcast, the American Institute of Certified Public Accountants’ Chief Auditor Bob Dohrer encouraged remote auditors to be creative and innovative while complying with auditing standards, as those standards generally address what evidence is required rather than how that evidence is obtained. However, the profession may have to specifically address some remote audit issues, such as how much reliance can be placed on bots and software in evaluating audit evidence, and the extent to which audit work can be performed by unlicensed individuals at home or abroad. As remote auditing gains acceptance, more work could be performed by staff that are beyond the reach of national regulators and law enforcement, opening up bigger questions of how to best maintain the profession’s high standards in a remote landscape.

Technology

Performing audits remotely creates unique challenges that need to be navigated with agility and intelligent technological solutions. Remote audits are likely to require access to high-speed internet in new areas, such as warehouses and remote facilities, or video access for performing inspections. For instance, company personnel accompanied by a virtual auditor via a live stream from a smartphone, or even a drone, may perform inventory observations, walk-throughs of a facility, and other procedures.

Remote auditing is coalescing with other technological changes to create a very different work experience for auditors, as well as new possibilities that may improve or enhance the quality of audits. Consider the impact that automation may have. Walmart had been testing autonomous robots for inventory tracking. While the technology hasn’t yet proven to be more effective than the company’s human staff— and certainly not as smooth and seamless as fictional robots like Pixar’s Wall-E—as the technology improves, automation is likely inevitable. Walmart’s experience just once again demonstrates that it may take some preparation and adjustment to deploy new technologies effectively.

With COVID-19 accelerating us into the age of the remote audit, it’s time to prepare for these innovations in auditing to stay long after the pandemic disappears in the rearview mirror of history.

This column was co-authored with John Hepp, Ph.D., clinical assistant professor of accountancy in the University of Illinois’ Geis School of Business.

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