How Audit Technology Helps Firms Adapt in 2020

Undoubtedly, 2020 has been a challenging year. First, clients had to quickly adapt to pandemic lockdowns and a remote workforce. Next, they had to deal with declining revenue and cash flow uncertainty. In many cases, even internal controls had to be modified. These factors will cause you to adjust your audit plans. For those reasons, we recently interviewed Bob Dohrer, Chief Auditor with the AICPA, in a podcast. Dohrer is an expert on auditing standards and works to transform standards to encourage the use of audit technology.

You’ll receive a lot of value by listening to the complete podcast. Indeed, we can only cover the highlights here. During the podcast, Dohrer shared insights about:

  • Overall, what fundamental questions do auditors face in 2020?
  • Consequently, what audit risks have increased?
  • Further, how will audit technology impact future standards?

Pivoting to Remote Audits

In light of the COVID-19 pandemic, many auditors have faced new questions. How can you perform an audit procedure remotely? Let alone conduct a fraud inquiry without face-to-face contact? And how can you observe inventory or internal controls without visiting on-site?

In truth, auditing standards set forth the principal objectives or requirements of the audit. However, standards rarely dictate specifically how auditors must meet those requirements. Therefore, auditors may use audit technology to innovate and meet requirements remotely.

Without a doubt, remote auditing is not always ideal. For example, it is considered best practice to conduct fraud inquiries in person. Specifically, you want to judge the subject’s response, reading face and body language. You can accomplish this in video meetings, to some degree. Dohrer thinks video is a reasonable alternative to meet the standard now.

Keep an Eye on the Fraud Triangle

Pandemic shutdowns caused significant economic distress. Accordingly, auditors may find fraudulent financial reporting or misappropriation of assets. Additionally, moving to remote work may have led organizations to modify or override internal controls.

As always, Dohrer advises auditors to be on the lookout for the ‘triangle of fraud’. Three circumstances comprise the triangle and can lead to the commission of fraud:

  • The incentive to commit fraud
  • The opportunity to carry out a fraudulent act
  • The ability to rationalize that fraud

Taking this part by part, it’s easy to see the triangle forming in 2020. First, the economic downturn eroded revenue and increased pressure, leading to incentive. Further, quick operational changes degraded internal controls, creating opportunity. Finally, rapid job losses and closures caused pain, allowing people to rationalize.

Watch for Unintentional Non-Compliance

Dohrer cautions against assuming small, family-owned businesses have less risk in 2020. Rather, the rapid rollout of federal laws increased the risk of unintentional non-compliance. Programs like the PPP include a host of regulations, requirements, and calculations. Accordingly, you should examine how unintentional mistakes could impact financial statements. For example, if a PPP loan fails to get fully forgiven. Also, consider estimation uncertainty on cashflow projections during this year of surprises.

Streamline Procedures with Audit Data Analytics

According to the AICPA, using Audit Data Analytics (ADA) can help firms enhance traditional audit processes. Indeed, they can contribute to every phase of an audit. Further, analytics offers a new way of visualizing results.

An analytic may serve as a risk assessment procedure and a substantive procedure. This may let you eliminate some procedures. Requirements for risk assessment and substantive procedures haven’t changed. But analytics can help you streamline your plan.

Audit Technology Helps Audit Evolve

In conclusion, 2020 continues to challenge auditors and clients. However, audit technology makes it possible to conduct remote audits. Just imagine this pandemic before online communication and integrated audit technology!

The profession will move forward together. The AICPA is committed to providing frameworks for leveraging audit technology to improve quality. And firms can drive efficiency with Wolters Kluwer’s Integrated Audit Approach.

Listen to the recorded podcast for more informative insights from Bob Dohrer.

Explore these additional resources:

AICPA Audit & Assurance COVID-19 Resource Center

AICPA Guide to Audit Data Analytics

P.S. You might also like this blog post, Audit Technology: Key to Firm Expansion and Survival

AUTHOR

Kim Conaway

All stories by: Kim Conaway