Auditing Challenges and Changes Post-Pandemic
Originally published by AccountingWeb
As a principal with more than 20 years of experience in audit and assurance, Mark Audi, CPA had grown accustomed to the rhythm and workflow of the audit process. But in March 2020, he quickly realized how CPAs work with audit clients and team members changed substantially.
In 2020, auditors had a get out of jail free card in dealing with the newness of remote work and the impact on personal and professional lives, but not when it came to producing the high-quality work we always do.
Like so many other industries, these changes created challenges, but also opportunities to rethink the way we do business. I suspect many of these changes will prove to have sustainable benefits and stick around even as restrictions begin to lift and we navigate the ever-changing landscape of a post-vaccination world.
Managing the Changes of Remote Work
Clients were understanding of the challenges facing us technologically because they were going through those same issues themselves. Maybe an employee was navigating a Zoom call for the first time, or a client needed some extra time in getting us a document digitally. We all understood that these were growing pains in unprecedented times.
Well, in 2021, that free pass is gone. More than a year since the beginning of the COVID shutdown, clients now expect us to have our ducks in a row and to seamlessly integrate our services into a hybrid platform.
Over the next six to 12 months, mastering this new approach and embracing the various opportunities with technology will be a powerful differentiator for auditors who do it well. I foresee many of the more routine aspects of the audit process continuing to take place remotely, and this is validated in recent conversations with clients. I would estimate a good 60-70 percent of my clients will choose to have us conduct a significant component of their annual audits remotely.
That doesn’t mean there won’t be value in meeting face-to-face, especially to foster the client relationships that are so important to our business. The expectation for 2021 and beyond will be striking the right balance between digital and in-person client interaction.
Value in Different Interactions
Prior to the pandemic, a traditional audit would involve coordination of onsite fieldwork to perform significant phases of the audit, planning, interim and year-end procedures. For clients requiring physical inventory observations, another logistical touch point would likely need to be arranged as well.
During each on-site visit, there would be a healthy number of client meetings as we execute the information gathering process, mostly with members of the company’s accounting department. Depending upon the size and complexity of the engagement, the pre-pandemic, in-person environment meant that most of our team members would be on-site for a varying number of days/weeks at a time.
As a partner, I had a structured schedule: catching up with my team, going through issues related to the audit, speaking with the company CEO or CFO, and other miscellaneous items, if time allowed. This schedule often hindered our ability to interact in a meaningful way with employees from the company outside of the immediate finance team responsible for working on the audit with us.
The pandemic changed that. Once we adapted to virtual meetings, we began interacting far more often with various other parts of a company that produce information that impacts an audit.
We were in virtual meetings much more regularly with people working in operations, sales, FP&A, procurement, logistics, and more. We developed a broader and deeper understanding of the companies we audit because we were able to conduct more comprehensive conversations with people directly involved in its day-to-day operations. At our firm, these types of conversations continue in 2021 and will remain, in some form, a part of our engagements. I believe this will be a significant value-add moving forward.
Understanding Client Relations
In addition to the time incurred, there are inherent hard costs to performing audits in-person: travel, lodging and other incremental expenses. Most, if not all, of those went away in 2020. However, the effort (hours) to perform the audit, was either the same or more than before. It was hard to pinpoint why this was the case, or to quantify it.
As a result, it seemed logical to blame the time-consuming nature of transitioning into a fully digital audit process. Our clients experienced it on their end as well – things just seemed to take longer.
There was a general feeling that the pandemic had an adverse impact on efficiency. As a result, our clients amicably agreed to evenly share in any incremental costs. I was never so proud and appreciative of the relationships my team and I built with clients over the years because I am not sure that would have been the outcome if it was not for those strong foundations.
In 2021, with more than a year of experience in the virtual environment, our clients now perform their monthly, quarterly and annual close remotely and have the process under control. To complement that, we too have seamlessly integrated into their hybrid space.
We were prepared, recognized some great efficiencies in the process, and completed our audits ahead of schedule. In those instances, we were in a good position to share cost efficiencies with the company as a thank you for their understanding of the cost inefficiencies of 2020.
The coming years will offer opportunities for innovation in how we embrace the hybrid model and reimagine the dynamic of our client relationships. What our profession looks and feels like after this pandemic is far behind us remains uncertain, but it’s readily apparent that there will be no going back to the way things were done prior to 2020. The auditors who can best adapt to this new environment will be the ones who win out in the long run.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.