Can Remote Audit Be Done Successfully?
“The Covid-19 pandemic has been a significant shock for the audit profession. At this time of heightened economic frailty, performing high quality audits is fundamentally more crucial, but harder to execute”.
This quote from the FRC Developments in Audit report from December 2020 perfectly encapsulates the difficulties faced by auditors and companies seeking auditors in the wake of COVID-19.
Change within the audit profession has been varied with some such as Deloitte reporting successful rapid shifts to remote auditing “largely due to more than a decade of investments in our organisation’s digital transformation”. However, most companies share a range of concerns caused by the pandemic as highlighted further in the FRC report:
- Judgements: business uncertainty abounds, with judgements on valuations or impairment assessments becoming increasingly difficult.
- Controls: as companies look to reorganise workforces, and as teams move remote, internal control systems and processes can suffer from a lack of diligence: For example, a survey by the Chartered Institute of Internal Auditors found that “45% of internal audit staff had been redeployed to support other areas of the business, while 15% were furloughed”.
- Remote Work: Oversight, meetings, business tours, the lack of overseas oversight and inability to meet with, and challenge, management are all barriers to effective auditing: “Tangible evidence is often difficult to access”.
Can remote audit work?
Remote processes can, objectively, work in any services environment, and this is no different within the audit sector. The government continues to make wholesale changes to the industry with concerns around the dominance of the Big Four in the accountancy space. This, together with the added financial pressures many companies now face, means that the shift to remote working is affecting auditing profoundly.
What are the biggest takeaways from the move to remote work within auditing?
Communications, relationship building and strategy
- One of the most important factors in any auditor’s job is the proximity and relationship they build with their clients over time: “(The client) want(s) a supportive relationship with an auditor who sees the bigger picture and can help them as they develop their business. That is difficult if you have to be so careful in terms of, for example, an auditor not being able to have lunch with that client, where you can get a better understanding of what’s happening in that business than just from the financial documents. There is a need for balance.”
- Remote work does hamper this relationship unless the auditor, their audit team, and the client, ahead of time, factor in COVID-19 protocol around face-to-face meetings.
Proper controls and planning ahead
- Safeguarding assets and managing confidentiality will be a test of how effective a remote audit process will be, and employers are responsible for preparing all their staff ahead of time on how to manage the transference of data, documentation and analysis. The entire process needs to be equitably managed as risk management and cyber security becomes, although top-down managed, everyone’s responsibility.
Challenger auditors and the Big 4
- Whilst remote auditing can save a client time and money, reduce auditors’ vast travelling times and “auditor burnout”, the potential for challenger auditors to become more visible and more trusted is rising at an exponential rate.
- From the CMA judgement in 2019 “which proposed a range of measures to make the system more independent, and to increase choice, competition and resilience within the audit market”, to the subject of “joint audits” between the Big 4 and challenger auditors, can we now conclude that this is the SME auditor’s time to shine?
- Initial signs in 2020 have not been hugely positive: mid-tier auditors have had their recruitment hindered, and some firms have cut staff. However 2021 is a different story – “High profile audit failures, record fines, and missed audit quality targets means scrutiny of the audit industry is at an all-time high… we’re now seeing (a) shift in the audit industry as demonstrated by the recent news that challenger firm BDO now audits the highest number of listed UK companies.”
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