Top 5 challenges within the audit industry
Approaching 2023 and beyond requires renewed commitment to evolution and innovation.
Audit firms face a unique set of challenges. The addition of policies such as environmental, social, and governance (ESG) create new areas of interest for stakeholders and investors, the shrinking talent pool has firms looking to improve workflow by automating processes, and an increasing focus on compliance measures are affecting both auditors and clients alike.
Not only are audit firms having to navigate these concerns internally; they also must address them in their client work. Let’s take a closer look at the top five areas of change in audit and how they are developing.
Increased focus on ESG
There are a number of issues and challenges around ESG that tax and accounting firms need to consider. Here is a brief summary of the top five:
1. How is the growing focus on ESG affecting the audit profession?
Auditors are having to expand the scope of their work as ESG is increasingly under the scrutiny of stakeholders and investors. As an area that is still developing, and – from an audit and accounting standpoint – still in its infancy, it can feel a bit like the Wild West. However, the need to deliver reporting on ESG is becoming a very serious business as it can affect everything from supplier selection, grants, and funding to valuations.
2. What are some of the key challenges that audit firms face when auditing ESG disclosures?
Firms must either upskill their auditors or invest in new talent with the education and qualifications around ESG to ensure the proper engagements occur. Reporting can be fragmented, difficult to decipher, and has been an issue where no standard has existed before. Comparisons can be hard to make. The introduction of the International Sustainability Standards Board (ISSB) in November 2021 has set out to improve the comprehensiveness and quality of ESG reporting with four key objectives.
3. Talent acquisition and retention
Attracting and retaining top talent in the tax and accounting industry can be a challenge. This is especially true as the demand for skilled auditors increases and competition from other firms and industries grows. In December 2022, The Wall Street Journal reported that more than 300,000 accountants and auditors had left their positions in the past two years.
4. How has the demand for talent in the audit profession changed in recent years?
The exodus of experienced auditors, the shrinking talent pool of new auditors, and the changing expectations and skillsets required have led to a brain drain in the profession. The scope of work auditors are asked to perform is expanding to include providing assurance on reports and disclosures, navigating the omnipresence of seemingly infinite data sets, and working with new technology and tools. Recruiters are looking beyond traditional qualifications to fill these gaps.
5. What are some of the potential risks and opportunities that emerging technologies pose to the talent pool in the audit profession?
The rise of emerging technologies presents an opportunity for auditors to expand their and service offerings by employing technology to do more of the heavy lifting. The flip side is that the technology can be costly, and there is an assumption that senior professionals may not be prepared to invest in tool-based reporting. The need for continuing education and training requirements will continue to increase resulting in more auditors potentially opting for careers in other industries instead.
Technology/innovation
With the rapid advancement of technology, auditors may find it challenging to keep up with new software tools and processes that are being used by clients, as well as adapt their own audit processes to remain efficient and effective.
How are audit firms leveraging technology to improve their audit processes and enhance the quality of their work?
In an effort to improve quality, quantity, productivity, and the bottom line, technology is the way of the future. Cloud-based systems streamline workflow and communication, which allows teams to focus on higher-value tasks. Data and analytics are quickly synthesized with AI tools providing a greater degree of accuracy and may offer improved insights.
How can audit firms balance the need for innovation with the need for risk management and regulatory compliance?
Where training can take time and investments in human capital, which can be lost if those people choose to leave the profession, innovating using technology secures confidence in proven process-driven results to meet the growing demands for risk management and regulatory compliance. Audit firms must find a way to adapt by regulating digital reporting with business insights.
M&A activity
With an increase in M&A activity, auditors may face challenges in managing the complexities of the transaction and ensuring that financial reporting is accurate and reliable. In 2022, over 20,000 mergers and acquisitions took place in the U.S. alone.
How can audit firms help their clients navigate the challenges associated with M&A transactions?
As mergers and acquisitions become more complex, the accuracy of valuations and the ability to support the merging of financial systems and controls will require diverse knowledge of the technology and tools being used. The need for specialized knowledge in compliance both within mergers and acquisitions as well as within industries will grow. Internal control assessments, risk management, and post-merger performance will continue to play important roles.
How can auditors ensure that the financial reporting associated with M&A transactions is accurate and reliable?
With all the changes taking place, auditors will want to take a deep dive into their internal operations to evaluate their efficacy and quality. Developing new unique selling propositions based on new competencies will help them stand out from the crowd. Taking the time to plan and reimagine their financial reporting methodology is going to be critical to accuracy and reliability.
Ensuring compliance
With ever-changing regulations and increased regulatory scrutiny, auditors must stay abreast of the latest requirements and have the necessary skills and expertise to manage compliance-related challenges. Clients are continually facing tax law changes, updates, and new compliance frameworks that require expert insight.
How can auditors ensure that they have the necessary skills and expertise to manage compliance-related challenges?
Since compliance is very industry-specific, auditors may find outsourcing or engaging compliance consultants an effective way to stay current with compliance requirements. Outsourcing will alleviate the pressure on already lean in-house talent. Alternatively, they may wish to hire dedicated resources whose role is the in-house consultant on all compliance-related matters.
What are some of the key areas where auditors may need to focus their training and development efforts?
Training and development in data analytics, tools, and technology should be key areas of focus. Fostering a culture of continual learning and development from a leadership perspective is a best practice in developing and retaining the knowledge and experience of team members. Developing a high degree of comfort in working with cloud-based solutions and thinking beyond “the way we’ve always done it” will help keep auditing firms in touch with the growing scale and scope of the demands of their clients.
Conclusion: Overcoming audit challenges
Firms that embrace change and adopt a proactive approach to audit innovation will be in a better position for success in the years ahead. By leveraging technology, building diverse teams, and staying informed about regulatory developments, auditors can ensure they have provided the highest quality of service while staying ahead of the curve. For more information on how to innovate, we offer a deeper look in 4 Keys to the Future of Audit | Thomson Reuters.
