Q: You mentioned a virtual environment: how is technology helping auditors during the COVID-19 crisis?
A: The pandemic has highlighted how the profession is using technology. First, because audit firms were already largely working in a remote, digital environment – particularly those with multinational clients working remotely across regions, which necessitates data sharing and engaging virtually in other ways. Now you have company staff, regulators and other members of the financial reporting supply chain all working remotely at the same time. Auditors have adapted to this virtual environment quite quickly without compromising audit quality.
Second, technology has also enabled firms to adapt to difficulties encountered as a result of COVID-19. One area is the reliance on technology to conduct inventory observations that may have previously been done in person. I recently learned of firms leveraging GPS-enabled smartphones to share a video feed and the location data of an inventory observation. But even with a video feed, auditors will need to identify additional ways to verify that the inventory is what it appears to be, where it appears to be. It’s amazing how auditors can adapt, because people in the profession are inherently creative and skeptical.
Q: How can technology improve audit quality more broadly?
A: The developments in technology in the audit profession are revolutionary. Firms are using technology in ways that I don’t think a lot of people realize.
A perfect example of that here in the US was the implementation of the new lease accounting standard for public companies. Historically, the auditor would just sample a subset of a company’s leases. But with machine learning and other technological capabilities, they can now review all of them – and for some large companies, you’re talking tens of thousands.
Having that automated capability is enabling the auditor to focus on other important responsibilities, such as valuations and issue spotting. It also allows them to have more strategic and risk management discussions with the audit committee. They can focus on the more high-risk, subjective areas that can lead to problems.
I’ve heard some people insinuate that technology is going to replace the auditor. My answer to that is: no, it won’t. Technology cannot replace the human elements of being an auditor. What I do think you can have is an exciting collaboration of technology and the human auditor, combining the benefits of both. Ultimately, that’s going to lead to the highest quality of audits.