The future of audit – what next?
It’s safe to say most people will be pleased to see the back of 2020. A year that will undoubtedly go down in the history books as one of the deadliest and most challenging years in modern history. In the business world, no industry remained untouched by the pandemic. We witnessed the devastating impacts to sectors such as aviation, hospitality and the arts whilst, in contrast, many e-commerce and technology industries continued to boom and enjoy great successes. 2020 forced the majority of businesses, regardless of sector or size, to adopt the use of new technologies. For many industries such as professional services, the pandemic shone a light on outdated business models, inefficient processes and the need to build more resilient supply chains in preparation for an increasingly uncertain future.
And now with a new year before us, we ask- what does the future hold for the audit sector and the wider professional services industry? We asked the Engine B team to look into their crystal balls and offer their predictions for 2021.
1. Don’t stop me now – Can the pace of change go any faster?
Undeniably, 2020 was one of the most disruptive years to date with Covid-19 vastly accelerating the pace of change for many professional services firms. Heading into 2021, we anticipate this pace only to speed up further. Any changes made last year, such as the implementation of digital signatures vs wet ink, will likely stick and become ‘business as usual’, creating new post-Covid standards. The economic climate in the wake of the pandemic will mean in order for firms to sell and deliver high-quality services, they will have to shake up how they operate and do more, faster and leaner than before. This will only be possible with increased digital transformation, with those failing to keep up estimated to fall by the wayside.
2. Audit quality gap widens
The future of audit depends on the increased adoption of new technologies. Without transformation, firms will be unable to address systematic inefficiencies, combat time-consuming audit processes and remain fit for purpose. 2020 saw many more auditors coming around to the idea of technology being used, not as a way to replace auditors themselves, but to enhance decision-making. That being said, we expect an audit quality gap to open up between the audit firms that prepare their people for technological change on a systematic basis, and those who adopt an ‘all-tech, no training’ type solution. A further split between those investing in technology and those who don’t have the cash to do is likely to widen existing gaps.
3. Does the future of audit mean more scandals?
Does the future of audit include another famous failure? We expect so. Last year, the much-publicised collapse of Patisserie Valerie and the Carillion and Wirecard scandals thrust audit into the scrutinising glare of the public eye, leading to a significant breakdown in trust for audit. Whilst these failures have strengthened calls for a ‘shake-up’ of the sector, until firms make the jump and begin to leverage technologies such as Knowledge Graphs, which help to uncover fraud quickly and unlock hidden risks in data, another prominent audit failure is probably around the corner.
Perhaps the real problem lies in the mismatch we see between regulatory scope and wider societal expectations of audit. Audit firms already offer more comprehensive solutions for parts of the audit process, such as due diligence, so the challenge is less about capability and more about scope and efficiency. An auditor can’t afford to check every invoice or every identified risk and instead has to use a materiality bar to filter these. The use of technology and graphs can indeed help to resolve these issues, but until we see a shift in what the regulators expect from auditors, more failures are scandals lie on the horizon. Can we expect this to change in 2021? Probably not, but the industry needs to take a big step in the right direction in making audit more relevant to society this year.
4. The year of ‘actual’ automation
For many, 2021 will be remembered as the year of the vaccine. But for professional services, we hope it will be known more widely as the year of ‘actual’ automation. Whilst 2020 saw a significant increase in spending on the automation of audit, this year we expect firms to employ more strategic automation over a tactical approach. In the coming months, we look forward to witnessing the first audits to be significantly improved by the use of technologies such as Knowledge Graphs and believe Common Data Models, like the ones we are creating at Engine B, will be adopted by third party technology firms providing audit tools. We predict a game-changing year for the future of audit.
5. Draft standards for ESG reporting will be published
Environmental, social and governance reporting (ESG) refers to the three central factors in measuring the sustainability and societal impact of an investment in a business. The criteria help to better determine the future financial performance of companies (return and risk). We expect these standards to be published this year. Why? Because stakeholders are increasingly demanding ESG information, whether they are shareholders, creditors or consumers. Without standards, there’s a risk we’ll see companies increasingly providing data or information which isn’t reliable or comparable, as each company naturally chooses to publish the figures which show it in the best possible light. There’s sometimes a risk with new publication requirements that they provide more noise than information, so it’s key that draft ESG standards are good quality, comprehensive, and make sure all stakeholders (not just shareholders) have access to the relevant information to make informed decisions. A rigorous conversation about draft standards is the best way to make sure we get a set of publication standards that lets stakeholders hold management to account and creates powerful market incentives for businesses to choose the ethical and sustainable course of action.
6. A part-time return to the office
2020 proved just how successfully remote teams can function. This year, we suspect employees may want to return to the office in varying degrees, but the dial has truly shifted with many individuals valuing flexibility over longer commutes. Five days in the office will truly be a thing of the past. We expect many companies will split working hours between home, the office and meeting clients. Clients of professional services firms are also unlikely to expect their auditors and advisors to be there full-time after having demonstrated the work that can happen without being physically present.
So, there you have it – Engine B’s predictions for the future of audit and professional services in 2021. With the true consequences of the pandemic’s longer-term impacts on the physical, mental and economic health of our nation yet to be felt, there remains an abundance of question marks over the coming year. What is clear though, is that the professional services industry is standing on the precipice of a momentous change, and Engine B is excited to be part of that change. This year, we’re committed to delivering real change in the professional services industry and continuing to build on the great work we have achieved in 2020. We look forward to seeing you along the way.
Want to find out more about how Engine B’s products and solutions are enabling organisations to harness their data to improve the quality of services they provide? Download our free business guide here. Alternatively, we are hosting a live digital event in March on the future of audit. If you would like to attend, register your interest here.