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
Controller - UOP, Honeywell International Inc.
Navigating the Ins and Outs of Corporate Finance
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 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.
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.
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.
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.
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
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.