“Audit Approaches New Complexities: Adapting to a Changing World
Although audit has been a critical component of business for over a century, the demands on auditors have evolved significantly since its inception. The collapse of Kingston Cotton Mills in 1894 triggered an identity crisis within the auditing profession, leading to a landmark ruling that auditors were watchdogs, not bloodhounds responsible for unearthing fraud.
Fast forward to the present day, and the audit profession is facing a vastly more complex business landscape. The integration of technology like AI and machine learning has expanded the potential capabilities of audit, leading to heightened stakeholder expectations for fraud detection. Simultaneously, the growing urgency surrounding climate change has ignited a surge in demand for sustainability assurance.
The Modern Auditor: Watchdog or Bloodhound?
As auditors grapple with the necessity of supporting accurate and transparent environmental, social, and governance (ESG) reporting, they are expected to not only be diligent financial watchdogs, but also environmental stewards contributing to a sustainable future. These transformations are challenging the profession and raising questions about the role of the auditor of the future.
Using Technology to Redefine Auditing
Technology is rapidly transforming the world of auditing. Drones are being utilized for stock count audits, while AI and machine learning are enabling auditors to evaluate entire datasets and predict future risks. However, these technological capabilities also come with a weighty burden of expectation to catch all possible instances of fraud and accurately forecast future corporate demises.
Closing the “Expectation Gap”
Maggie McGhee, of the Association of Chartered Certified Accountants (ACCA), emphasizes the need for educating stakeholders on what CPAs can and can’t provide in this evolving space. As auditors face increasing pressure to adopt more technological solutions, the profession must demonstrate the value of audit to society and navigate the potential risks and biases associated with new technologies.
Redefining Auditing Standards
The International Auditing and Assurance Standards Board (IAASB) is leading the way in formulating the responsibilities of the profession to evolve, including technological evolutions. With projects underway for updated auditing standards addressing audit evidence, going concern, and fraud, the IAASB is working to equip CPAs with the tools they need to adapt to a changing world and combat the comprehensive existential threat of the 21st century: climate change.
As the audit profession continues to navigate these uncharted waters, it is clear that the role of the auditor is evolving beyond being a mere watchdog or relentless bloodhound. Embracing innovation, upskilling, and redefining their position within society will be crucial for CPAs to bridge the enduring yet evolving “expectation gap”. With technology and revised standards at their disposal, auditors have the opportunity to redefine their role and contribute to a sustainable, transparent, and accountable business landscape for the future.”