to remain relevant, we must change the meaning.
by alan anderson
transforming audit for the future
as i see it, audit is at a crossroads. on one path, audit will keep going the way it has for the last decade or so. it will become so irrelevant and commodified it will vanish. fees will drop so low that no one will be able to afford to be in the audit business. plus, technologies like artificial intelligence and blockchain will be able to do what we’re doing now, only better, faster and cheaper. that might not happen for another 15 years, but that is coming.
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but there’s another solution — we can drive change positively for our profession. this change won’t happen overnight. i want to encourage us to really think about driving that change because we can influence it quite dramatically.
moving a&a from audit and accounting to assurance and advisory
i like to use the diagram above when i talk to firms about what moving into the future of a&a looks like. in the current state, audits have been heavily focused on compliance, so a&a is audit and accounting. auditors are the resource to ensure companies are doing their accounting correctly and comply with gaap and the rules set out by the various regulatory agencies. there’s not a tremendous amount of value or customer service included in what audit and accounting provide. the product of your work is not terribly distinguishable from the audit firm down the street. it’s a commodity. and if your firm remains here, it won’t be around much longer because pure compliance work is on the way out.
moving to the right to audit and assurance means that your orientation shifts from pure compliance to client service. you get there by applying a data orientation to your audit and by using tools that provide assurance. these data tools give you another way to look at a client’s data in aggregate so you can see patterns and trends that are invisible when you look at the historical financial statements. these data tools can be simple things like doing an excel regression analysis of inventory pricing. they can also be as complex as a data analytic algorithm or a tool like mindbridge that looks for outliers in a data set.
sooner than we may want to believe, we will have tools that will allow us to provide real-time assurance, which will help us move into advisory. we’ll have real-time dashboards that clients can use to monitor financial activity as it happens. auditors will deploy ai bots in their clients’ systems that will identify transactions that don’t make sense as they happen. the auditor will get an alert so they can talk to the client about it and decide whether a transaction is appropriate.
assurance is more contemporaneous. assurance goes beyond making sure the numbers are right and adds the component of “does this transaction make sense?” at this level, tech tools replace the ticking and tying and the detailed manual work that’s needed to accomplish the compliance part, while the auditor provides assurance on the outputs of those ai tools. through the simple use of those tools, you automatically become more knowledgeable about the business. you communicate more ideas and suggestions to the client that become more of a value add. you’re also moving the dial from less of a compliance focus to more of a client service focus.
as you move that dial of client service even more, you move fully into assurance and advisory. in that end state, you become what your clients really want, and that’s the trusted advisor role. your clients see more of the value that you bring to the table. the compliance part of what you do is significantly muted because, in the future, compliance will be monitored by systems, whether it’s bots, ai or something else, so there won’t be much of a need for humans to verify that companies are in compliance. i guarantee that any company getting value from their auditor today has far less of an issue with the cost of an audit than a company just getting the basic compliance from their audit firm.