At-A-Glance

Our Worldwide Update is again split into two sections. The first covers COVID-19 news from organizations across the globe, while the second covers other news.

Internal and External Auditors Look Toward 2022

Considering trends and risks new and old

In a recent survey report, 2022 Focus on the Future: Internal Audit Resilience and Readiness in the New Age of Risk, technology firm AuditBoard queried internal audit professionals on their expectations for the coming year. Separately, in an Accounting Today hosted webinar titled State of Audit 2022, sponsored by information services firm Wolters Kluwer, the biggest challenges facing external auditors were considered along with their impact on audit quality.

Finding and retaining talent was by far the prominent concern of the external auditors, with technology second, and environmental, social, and governmental (ESG) reporting a far distant third. While the internal auditors’ concerns were further delineated among thirteen categories, the top two were similar to the external auditors, albeit with the cybersecurity and data privacy aspect of technology on top, ahead of attracting and retaining talent. The third through fifth ranked concerns were third-party risk management, regulatory changes, and business continuity and crisis response.

Attracting and retaining talent is a complex and multi-faceted challenge. The number of students choosing accounting majors has been declining. The profession will need to increase salaries and do a better job of marketing the creative aspects of the profession to better compete. Technology innovations and remote working models will play a role. The rise of technology has eliminated much of the mundane work that has plagued the accountant’s reputation in the past. Remote and hybrid working conditions will also provide avenues for bringing new participants into this field.

The combined use of modern technology and remote work will aid the staffing of auditors on both sides of the audit function. Just as society as a whole has rapidly become comfortable and adept at remote communications during COVID, auditors by necessity have had no choice but to adapt procedures to attain assurance at a distance. Cloud based audit platforms have become more robust to support the growing capacity and speed demands.

A new pool of remote workers has opened up without geographic boundaries, requiring only a computer and internet connection to tap into the cloud-based systems. More powerful systems extend the reach of advanced data analytics that can probe the deepest depths and widest breadth of an organization’s operations. Effective use of these capabilities requires added and continual upgrading of auditor skills in areas such as analytical and critical thinking, business acumen, risk management, information technology, and cybersecurity. While developing critical thinking, business acumen, and risk management skills are considered more readily feasible for traditional audit staff, specialized outside sources may be necessary for more sophisticated aspects of cybersecurity, data mining, and information technology. Personnel budgets are expected to increase to accommodate the needs.

Downsides of remote work include difficulties maintaining key relationships, monitoring productivity, and promoting personal mental health. Positive, ongoing connections with personnel from all areas of an organization enhance the internal auditor’s effectiveness, while the external auditor benefits from similar close contacts with client personnel as well as with all levels of the audit team.

The varied personalities of auditors have shown that some work well on their own while others thrive under closer supervision. A hybrid online and onsite work model may be tailored to address this diversity. Also, the isolated nature of remote work can exacerbate the already high stress environment of the audit profession. Long hours and lack of support can lead to burnout and dissatisfaction. Measures such as “no-email” time zones, dedicated open areas when in the office, and communications that promote purpose and future roles can help. My former firm provides free access to the Calm online meditation app, which provides a brief break when needed.

When performing a remote audit, in the initial risk assessment the external auditor needs to consider how controls may have changed, what can go wrong in a remote audit, what may need to be done differently than when performed in person, and what new risks are present. For example, client interviews may need to be beefed up and control reviews expanded. Since risk assessment drives the rest of the audit, getting it right is key. A data driven analysis should be performed early on to help reveal areas of concern. Deficiencies in risk assessment have been significant in peer reviews. A good cloud-based audit platform will have a workflow risk assessment template that moves through each step of the process, and then links the plan to the actual work performed to complete the documentation. Even with these measures, going onsite at the client location and walking around at least once during the audit is still a good idea. That way, unexpected items or issues may be observed, and the client is put on notice that the auditor has maintained a physical presence. 

The external auditor also needs to consider the new reporting standards going into effect for periods ending on or after December 15, 2021. Some of the changes in the audit report include placement of the opinion paragraph first, then having the basis for opinion paragraph next, including reference to the auditor’s independence and ethical requirements, followed by the content of a non-mandatory key matters section, and also include an expanded section of other management and auditor responsibilities.

The internal audit survey also asked respondents about expectations for 2025. While the top five concerns from 2022 remained at a comparable level, some of the currently lesser concerns loomed larger three years in the future. These related to changing economic conditions, disruption of business, diversity, equity, and inclusion, sustainability and climate change, effectiveness of board oversight of management, and artificial intelligence implementations, all of which are expected to be higher risks in 2025. Similar to the level of concern shown by the external auditors, internal auditors felt that the ESG measures and artificial intelligence, while little more than curiosities at many organizations today, stand to have a larger impact within three years.   

Further details can be found at 2022 Focus on the Future: Internal Audit Resilience and Readiness in the New Age of Risk and State of Audit 2022.

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