8 Jan 2018 03:49pm

Debate: statutory audit will be defunct by 2030

We asked a number of experts, professors, business groups and firms if statutory audit will be defunct by 2030

Caption: A collection of opinions on the future of audit

David Smith

Founding director of Smithink, in an interview with The Financial Review
“We’re now finding that for the first time an auditor can be a watchdog and a bloodhound. The concept of auditing 100% of the transactions is changing the whole nature of audit.”

Stella Fearnley

Professor in accounting at Bournemouth University
“If the audit by artificial intelligence proposal shows signs of coming to fruition, I shall be standing outside Chartered Accountants’ Hall and the offices of audit firms watching for the pink-winged pigs flying out of their buildings. Oink! Oink!

“As professional firms and ICAEW want to change audit methods, will these plans fit with UK company law? Regarding the audit by internal auditors, will they have different skills and qualifications from statutory auditors? Do company law and public protection fit in?

“I urge care and caution about a plan in its early stages. When IFRS was trumpeted as a great innovation, little attention was paid to the unintended consequences that allowed banks to report inflated profits via a mark-to-market regime and under provisioning for loan losses.”

Tom Davenport

Co-founder of the International Institute for Analytics and independent senior adviser to Deloitte Analytics writing for Deloitte Insights
“The advent of analytics and cognitive technology doesn’t mean the end of human auditors. It means an end to painstaking checking. The green-eyeshaded accountant who checks and crossfoots debit and credit entries will likely cease to exist.

The auditor who understands, monitors, and improves analytical and cognitive systems and processes will only thrive.”

Henry Irving

Head of ICAEW’s Audit and Assurance Faculty
“Imagine a world with totally automated audit: it would have to be a very trusting one! Trust in our society is declining: Edelman’s Trust Barometer has shown a steady decline over time for government, NGOs, media and business. Even trust in technology is faltering.

“Many of the governance and financial scandals of recent years have been less about immediate past financial loss (the historical subject of audit) and more about behavioural issues, corporate social and environmental responsibility. So, automation is unlikely to fill the trust gap. But, are auditors going to help meet higher expectations, or will others steal their lunch?

“To help auditors, barriers to change should be identified and addressed: restrictive standards, and a perceived blame culture in regulation are two examples that dent the confidence of, and in, auditors. A profession that lacks confidence will struggle to take up the opportunities of tech.”

Audit 2025: The Future is Now by Forbes and KPMG

“Technology, combined with the expertise of today’s skilled auditor, allows audit professionals to take a much deeper dive into the financial facets of an organisation and provide insights that result in more informed decisions in support of a high-quality audit”

Howard Gross

Chief executive of Gross Klein Network and chairman of the Society of Professional Accountants
“The days of the good old-fashioned external audit are long gone. Audits of small companies have largely disappeared unless the directors/shareholders require one. The threshold has been increased so not-so-small companies have dropped out of the requirement.

“However, a multinational public interest entity is far more complex. The numbers are large and the level of materiality is high, leaving scope for errors and fraud to go undetected below the threshold.

“The historic audit cannot stop fraud. It will be better governance to beef up internal auditing (throughout the year) with a strong team that can really get to know the business.

“This does not mean no audit work for larger firms – it could be more if their expertise is engaged earlier.”

Megan Lewczyk

Chief operating officer at Yager CPA Review writing for Going Concern
“It’s going to be a long time before computers can manage to exercise professional skepticism — an auditor’s acclaimed ‘gut feeling’ that something doesn’t look right.”

Hywel Ball

UK head of audit, EY
“The fourth industrial revolution is affecting all professions and audit will be no exception. Technology will continue to have a huge impact on how we do our roles in the future, the tools we use, the skills we need, and even potentially what we audit.

“Artificial intelligence, data analytics and robotics allow us to sift through and process vast quantities of data, from internal company records to external sources such as social media – and their usage will only continue to increase. What was once called the auditor’s ‘nose’ – or gut instinct – is increasingly being automated by advanced data analytics.

“These technologies are enhancing audit and are providing new insights into areas that were once thought to be impossible to measure, like culture. Audit will need to continue to adapt in order to stay relevant, but at a time when there is a widening trust gap between business and society, fake news is increasing and there is an explosion of big data, it will continue to have a vital role to play.”

Sue Almond

Head of assurance at Grant Thornton
“The important thing to ask is, why was audit ever devised? Why was it ever relevant? This takes us to the heart of the trust debate, because that is what audit, in its broadest sense, provides.

“Stakeholders need to be able to trust the information they use to make their decisions and, while stakeholders, the information they use and the way that information is compiled has changed over the years, the underlying need for trust has not, and is not ever likely to.

“Scrutiny by an external auditor is very much a valued part of the supply chain, which underpins trust not just locally but globally.

“AI can provide many insights that may replace elements of the audit process, but still frequently need interpretation, challenge and follow-up.”

Gilly Lord

Head of PwC’s audit strategy and transformation
“Auditors shouldn’t stay still when the prize for all, brought about by technology, is an altogether better audit.”