Approaching 2024 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.
|Increased focus on ESG
|Talent acquisition and retention
|Technology and innovation
|Conclusion: Overcoming audit challenges
Not only do audit firms have to navigate these concerns internally; they also must address them in their client work. Amidst these challenges, one constant remains for auditors: the importance of identifying risk.
Let’s take a closer look at the top five areas of change in audit and how firms can overcome these challenges.
Increased focus on ESG
There are a number of issues and audit-related challenges around ESG that tax and accounting firms need to consider.
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.
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.
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. Not to mention the fact that, in recent years, more tax professionals have exited the industry than entered it.
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.
To fill these gaps, recruiters are looking beyond traditional qualifications.
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 knowledge and service offerings by employing technology to do more of the heavy lifting. The flip side, however, is that the technology can be costly and disruptive to implement. Additionally, the need for continuing education and training requirements will continue to increase.
However, there is a bright spot in utilizing the power of cloud-based audit technology and AI to better identify risk and gain meaningful insight from the audit community—all without having to change your workflow. It’s an enormous opportunity in terms of efficiency, productivity, and improved work-life balance for auditors.
Technology and 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 junior staff to help senior staff with audit tech, leading them to focus on higher-value tasks. Data and analytics are quickly synthesized with AI tools providing a greater degree of accuracy, improved insights, and risk identification.
When seeking the right cloud-based software, look for software that rapidly synthesizes data and analytics with AI tools, offering not just accuracy, but enhanced insights and robust risk identification. The right software should be a catalyst for efficiency, empowering your team to focus on what truly matters in your audit process.
Learn more about Thomson Reuters Cloud Audit Suite
How can audit firms balance the need for innovation with the need for risk management and regulatory compliance?
Innovation 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.
The answer may come in the form of assisted decision making technology that can proactively present risks related to your engagement that you might not have thought of, enabling a faster and more confident audit.
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.
In terms of risk identification, AI-powered analysis and assisted decision making can tap into the work of auditors who faced a similar risk and suggested risk areas you may not have thought of.
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.
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.
As an alternative, many firms are incorporating AI and using predictive analytics to flag potential tax or non-compliance risks, avoid legal ramifications, and predict violations before they occur. Software solutions with AI capabilities can be a helpful partner in keeping pace with an ever-changing regulatory environment.
For example, Thomson Reuters Cloud Audit Suite not only aids in identifying related risks but also helps enhance the overall efficiency of addressing potential tax or compliance challenges. With this kind of technology, auditors gain a competitive edge by sifting through vast datasets, ensuring accuracy, and deriving actionable insights.
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. This includes understanding and incorporating AI for assisted decision making and enhanced risk identification.
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 3 Keys to the Future of Audit | Thomson Reuters.
As you navigate the evolving landscape of audit challenges, experience the transformative power of Thomson Reuters Cloud Audit Suite. With seamlessly integrated assisted decision making and AI capabilities, empower your firm to effortlessly identify related risks and ensure your audit is conducted with confidence. Navigate audit challenges with ease — explore the future of auditing with the Cloud Audit Suite.