Three key areas of transformation will be critical for the profession:
- The scope of what auditors are analyzing is broadening beyond financial information to include environmental, social, and governance (ESG) topics, as well as advanced and automated technologies.
- Technology and automation are increasingly being used to enable the audit.
- Auditors will need next-generation skills to use these new technologies and audit these new areas.
Even as the profession evolves, the primary objective remains the same: Auditors serve the capital markets, even as the markets demand nonfinancial information. External reporting plays a tremendous role in the capital markets by providing assurance over comprehensive, comparable, and objective financial statements as well as a check and balance for procedural and regulatory compliance. To prepare for the future of audit, firms should emphasize the core auditor skill set and continued focus on independence while evolving to meet the expanding needs of the capital markets, including ESG assurance and managing risks through digital transformation.
Broadening the Scope of Audited Data
In today’s dynamic capital market system, both investors and companies are increasingly focusing on the role corporations play, not only as profit generators, but also as responsible corporate citizens. Stakeholders are calling for fair reporting of information about climate; diversity, equity, and inclusion; and community impact.
Trustworthiness is key as companies report on an increasing variety of information, including ESG, technology, and non-GAAP information. Technology is influencing business outcomes, ESG strategies, and long-term resilience.
Companies are voluntarily preparing and presenting ESG information not only at the industry level, but also to the market more broadly. With the new proposed SEC requirements in mind, corporations are describing their long-term value creation strategies and outlining how they will meet the demands of investors and other key stakeholders. Much of this information, such as greenhouse gas emissions data and climate-related risk disclosures, has traditionally been outside of audited financial statements. But auditors need to be well positioned to assure ESG data. Auditors are independent and professionally skeptical, and they have significant experience in evaluating internal systems for processing data and testing whether reported data provides reliability, comparability, and relevance.
To prepare to provide non-financial assurance services effectively, CPA firms should proactively invest in ESG training for CPAs. As an example, KPMG, the authors’ firm, is investing $1.5 billion globally to train its professionals on ESG in collaboration with NYU Stern’s Center for Sustainable Business, University of Cambridge’s Judge Business School and other institutions.
Using Technology to Enhance the Audit
Technological changes are happening quickly. In the 2021 KPMG Finance and Audit Technology Survey, nearly all executives (98%) said their external audit firm uses advanced technology in the audit process (https://bit.ly/3IkdaEl). Just three years prior, only 74% of executives reported this.
Technology assurance professionals systematically look at the risks and controls related to all aspects of technology in order to increase investors’ and other stakeholders’ confidence in the completeness and accuracy of financial data. The 2021 KPMG Survey indicated that 60% to 70% of manual controls will be automated within the next five years. This wide-scale automation effort presents a huge and growing need to test automated controls to ensure information is complete and accurate. Auditors must meet the need for complex attestations of robotic process automation, cloud computing, and more. There is an increased demand for specialized System and Organization Controls (SOC) services for areas such as blockchain, cybersecurity, and supply chain.
In a PCAOB survey published in March 2022, audit committee chairs said they see transformative potential in these technologies, as long as cybersecurity and quality control are maintained (“2021 Conversations with Audit Committee Chairs,” https://bit.ly/3K3X6b2). Helping finance departments achieve greater efficiency through technology is a key action item for audit committees in 2023 (see https://bit.ly/3xv2CvQ).
Technological tools enhance audit quality and the client experience by eliminating or reducing time-consuming tasks. Automation and other data and analytics technologies free up auditors’ time to prioritize strategic, high-level thinking. For example, machine learning, a form of artificial intelligence (AI) that adapts through experience as it uses algorithms to draw inferences from large data sets, and natural language processing, a branch of AI focused on computers understanding the nuances of text and speech, can automate tasks that previously required time-consuming manual oversight.
To stay a step ahead of corporate transformation, auditors must be agile and achieve technological fluency with data and analytics, AI, and robotic process automation.
According to the Center for Audit Quality’s research, evolving areas such as ESG reporting benefit from the core approach and skill set of auditors, including independently evaluating information, evaluating internal processes for gathering and reporting data, understanding business processes, and assessing and responding to risk. Even as technology evolves, these remain foundational skills.
As a result, auditors must remain ahead of their clients in emerging technologies. As companies continue to innovate, auditors will continue to modernize their approach to auditing. For example, continuous auditing can provide timely and quality analysis of critical controls and ensure that a company can keep up with the pace of change in a highly dynamic environment.
Not only must auditors be well versed in accounting principles; they also need skills in data mining, analysis, and visualization. Auditors need to speak the language of data. Next-generation auditors must have strong accounting skills blended with STEM and data literacy, critical thinking skills, and project management abilities while maintaining professional skepticism and an inquisitive mind. In addition, these skills must be applied to assuring nonfinancial information.
As CPA firms develop next-generation auditors, they should also aim to develop a diverse and talented work-force. Firms and individual CPAs should devote themselves to ensuring that young people from underrepresented groups can build their careers and advance into leadership positions.
As auditors contemplate the evolution of the profession, they need to ask themselves the following questions:
- Do we have the technological and data analytics skills to meet our clients’ needs?
- Do we have a strong understanding of the emerging nonfinancial standards (e.g., proposed ESG regulations or standards) and the demands of stakeholders for reliable and consistent information?
- Have we structured our operating models to scale and leverage the use of automation and specialists?
- Do we understand our clients’ industries and trajectory of change? Are we proficient with the emerging technology our clients use?
Overall, CPAs must anticipate how trust and assurance will be provided in the future. Firms should think proactively about what the market needs before the market needs it. In addition, leading firms will focus on modernizing the audit to provide a better experience for their clients and their people, all with the goal of providing meaningful insights for our clients and an even higher–quality audit to protect the capital markets.