New research confirms what many investors already believe: the traditional audit must evolve to meet the changing needs of today’s capital markets. Quickly.
Audits are an essential part of our capital markets system, helping to enhance the trust of the investing public. This was confirmed by a recent Deloitte survey of financial statement preparers, audit committee members, and users of financial statements such as investors and pension fund managers; the vast majority of participants agreed that the audit is fundamental to maintaining confidence in capital markets.
At the same time, there is a growing consensus that the traditional audit must evolve rapidly in response to rising expectations and evolving client demands, increased access to information and analytics capabilities, and improved timeliness. According to Deloitte’s survey, half of financial statement users question if auditors provide meaningful insights beyond the boilerplate language of a traditional audit report. Also, 46 percent of audit committee members and 59 percent of financial statement users don’t feel the audit profession has been proactive in addressing their evolving needs.
Leading audit into the future
For audits to stay abreast of the changing business environment, the audit profession must move aggressively to transform itself. Three key areas emerged from the survey as important to address:
Deeper and broader insights. Traditional auditor’s reports may no longer meet all the needs of today’s investors. In fact, two-thirds of survey participants believe auditors should expand their scope of work to include assurance on market-moving information beyond the traditional financial statements and financial reporting controls.
Many investors are looking for deeper insights into the financial statements that can help them make smarter, more informed decisions. Fortunately, new financial disclosure and accounting policy analytics tools that are being developed can automate a complete search of public filings to identify industry trends, emerging issues, and best practices for disclosures. As a result, auditors will be able to provide insights that can lead to higher quality and more meaningful disclosures by clients.
Similarly, by delivering broader insights that go beyond the scope of a traditional audit to cover additional areas that more fully capture the underlying value drivers of today’s businesses – such as strategic risk management and cybersecurity – auditors can strive to meet the expanding needs of investors. Investors and corporate boards will likely look to the audit profession to expand outside its comfort zone and apply its unique expertise and objectivity to such top of mind issues.
Technology innovations can help auditors take the lead by being more predictive, proactive and insightful when analyzing and identifying risks and pressure points. Survey participants seem to agree – more than 62 percent believe advanced technologies could help the audit profession provide enhanced insights.
Better, faster, more efficient delivery. Capital markets and investors are demanding an audit process that is more timely and nimble, even as they expect auditors to continue to improve quality, expand assurance and deliver higher service levels.
Automating labor-intensive processes can streamline how audits are conducted and, with emerging developments in artificial intelligence and advanced analytics, enable auditors to focus their resources and expertise on high impact areas that are more strategic.
Even now, the audit process is quickly becoming an integral and seamless part of daily business operations, featuring capabilities that auditors in the past could only have dreamed about: things like real-time, continuous audit procedures, as well as audits of complete populations (not just statistical samples) in some situations. These kinds of capabilities are fundamentally transforming how audits are managed and delivered.
Innovative thinking – supported by new skill sets. Audits that are broader and deeper also require professionals with expanded skills. This means developing auditors with deeper knowledge in specialized areas — including those not covered by a traditional audit — as well as advanced skills in key technology areas such as data science, analytics and visualization.
As automation and artificial intelligence reduce the need for manual data collection and other labor-intensive tasks, auditors will likely be called upon to deliver more strategic insights. This new role requires a different kind of thinker: someone with broad business acumen and expert judgment who is able to see the big picture and make sense of the pieces. Clients will demand more than accounting and auditing expertise. Acquiring and developing these new skills requires different talent models and new approaches to learning. To support this, university curriculums need to evolve simultaneously with the accounting and audit profession.
It’s time for action
Sweeping changes like these will make the audit more valuable than ever. However, the changes won’t happen on their own – and they won’t happen overnight. The business environment is constantly shifting, spurred by technology innovations and evolving expectations. To deliver the most value, the audit profession must lead by taking deliberate steps to get in front of the challenges and bring audit into the future. This will require significant investments, and a mindset that is bolder than the public accounting profession has historically been known for.