are you teaching your team the real work or just the compliance work? 
by alan anderson, cpa
transforming audit for the future
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“the new manifesto for accountants.“
when i started in accounting, we wrote audit programs out by hand, and we thought about what it was we needed to do to carry out our audit procedures.
and then, the firm got a copy machine. that started the arts and crafts period of public accounting.
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because we were going to do the same as last year, every year we would make a copy of last year’s hand-written audit program, cut out the sign-offs, tape that on a new page, make sure to draw the lines for the sign-offs, and then we’d make a copy of that. then we had our audit program for the new year.
so that actually served as the springboard to the standardized audit program. at the same time, the standards were starting to grow, so we needed some way to make sure we were covering the voluminous requirements.
at the same time that i was learning to be a better auditor, technology was advancing. and we auditors started throwing some computers at the way we did audits. so we put our audit programs in word documents, and we made them more legible than the handwritten copies. then we didn’t need the copy machine anymore.
technology evolved some more, and we developed paperless ways of doing the work. no more lugging heavy binders of paper. no more camping out at the client’s photocopying machine. we jettisoned our red pencils and two-hole punches. but what did we really accomplish with that?
what we’ve done is reproduce in a paperless environment what we used to do on paper. if you printed out the electronic file of your work papers, wouldn’t that electronic file be almost a 100% replica of what that paper file looked like 25 years ago? we threw technology at the audit without really thinking that maybe something needed to change. is that really a good return on our investment in technology?
then at the same time, the fixed fee in the marketplace became much more prevalent. now we’re stuck in a fixed fee environment. efficiency matters now. so what we’re doing in today’s world of audit is teaching our staff to fill out forms faster, as opposed to thinking about the audit. instead of learning to ask the next best question, staff are just focused on asking the one question and getting the yes/no answer so they can move on.
and so, we’ve created an environment of filling out forms and filling out checklists, and if i fill out enough checklists, i certainly must have done an audit. the result is that our staff is not really getting the mentoring and coaching that they need to really help them understand this process.
when the staff accountants in your firm do fundamentally the same as last year every year, they don’t really learn how to audit. what they learn is how to fill out the forms repetitively every year. so after five years of doing that, these staff accountants don’t have five years of experience, but what they do have is one year of experience repeated five times.
if i had to fill out all the forms that audit staff fill out today, i wouldn’t be in public accounting. i didn’t get into accounting to fill out forms. i actually went into public accounting because i thought it was the best place to learn about business. i thought the best businesspeople were cpas in public practice.
we’ve evolved from paper and pencil to technology, but we’re not teaching the staff what audit is about. their focus is on the forms and not on what matters most to the client – the bottom line.
the three fundamental questions
when i started noticing this disconnect between what audit staff focused on, and what audit was supposed to be, i started asking three questions. first, it was just one, then it was two, and now it’s three.
- what was the bottom line on your last audit? i’ve asked over 400 people that question, and so far, only one person has known the answer. and of course, at the end of the session, the individual came up to me and said, “al, i’ll have to be honest with you. they told me you always ask that question so i went and looked.” managers and partners are relying on the work of those staff auditors, and they don’t know this one key metric. back when i was a staff auditor, this was something we paid attention to as a team. this was important to know. so, i started asking a second question.
- how many pages were in the disclosure checklist? out of the 80-plus people i’ve asked this second question, none of them knew what the bottom line was on their last audit, but over half knew the answer to this question. does this sound like a group that is focused on the client or on the checklists? so, then i added a third question.
- how does the client make money? of the 60 people i’ve asked, one gave me this answer: “that wasn’t my audit section. i don’t have to know.” how can you possibly do work in audit and not know what a client’s organization, their business, or their goals are?
i don’t believe it’s the staff’s fault. i believe the leadership of that audit, and maybe of the whole firm, dropped the ball. and it’s not just that particular firm. i believe that audit leadership has failed to ensure that audit continues as a valuable service for our clients. as a whole, we as audit leaders are not helping our staff to understand better what an audit’s all about, what a client’s all about, and really what we are as a firm when we deliver audit services by just filling out forms.
in 20+ years, not much has changed. today many of the college students who learned auditing from a textbook are in leadership positions at audit firms. they were warned about what we were up against. that we are still facing those same critical forces (e.g., technology, ai, cryptocurrencies, etc.), which have only exacerbated since then, is an indicator of the ossified state of leadership in the audit profession.
the future audit needs to be able to provide assurance on leading indicators on a much more on-demand, real-time basis. we need to take advantage of all of the data within the organization. for driverless cars, what would be the purpose of a rear-view mirror? this same question holds true for audits of the future, when access to real-time data and indicators will make it possible to view a company from more directions than just through the past.