State of Auditing: Why Firms Need to Invest in Technology — and Talent

In this series, professionals debate the state – and future – of their industry. Read all the posts here and write your own (use #MyIndustry in the body of your post).

"When a business ceases to be creative," Henry Ford once observed, "when it believes it has reached perfection and needs to do nothing but produce — no improvement, no development — it is done."

Public company auditors can take a great deal of pride and satisfaction in the strong state of their profession. Investors give independent auditors high approval ratings. Financial reporting looks healthy by a number of key measures, thanks in part to profession efforts. The employment outlook for the accounting and auditing profession is favorable from here to 2020, according to the Bureau of Labor Statistics.

But as auditors' pride and satisfaction in their profession grow, so too should their focus on the creativity, development, and improvement that Henry Ford emphasized. While this creativity and improvement can manifest themselves in many ways, here are three areas that I see as vital to maintaining and improving the state of the public company auditing profession for the benefit of markets and investors.

Reinforcing Fundamentals That Are Key to Expansion

I believe strongly that the U.S. public company auditing profession has a bright future — one reason why is its past.

Auditing is built on attestation services that, at their core, involve an independent and objective evaluation of controls or information that is the responsibility of another party. Over a history that stretches back to the early 1800s, the profession has developed a robust approach for offering such valuable business services, thanks to both myriad profession initiatives and vigorous public policymaking.

Whether inside or outside the mandated audit of financial statements, audit firms must operate within a sturdy framework of standards that demand independence, objectivity, and skepticism. Investors clearly value and desire these attributes, as shown consistently in the Center for Audit Quality (CAQ)'s Main Street Investor Survey.

The auditor of the future will need to maintain and develop these fundamentals, particularly as it expands into promising new areas like offering attestation services for sustainability, as well as data security and privacy. The CAQ has helped to reinforce auditing's fundamental foundations with tools and resources, such as the Professional Judgment Resource. Along with audit firms and other organizations serving the profession, the CAQ will continue to develop such resources.

Innovating and Investing in Capabilities

But as Henry Ford knew, being well-poised for the future also means thinking outside the box.

Technology is of course one area that springs to mind when it comes to creativity, innovation, and investment. Indeed, technology and advanced data analytics are areas where we know public company auditing firms are already looking ahead and devoting significant resources. As was observed at a May 2015 CAQ/John L. Weinberg Center for Corporate Governance panel on the "Auditor of the Future," techniques like natural language processing and artificial intelligence are no longer science fiction for auditors — they are being incorporated into the audit process.

Human resources have been, and will continue to be, another one of the profession's focus areas for innovation and investment. Education, for example, is a critical topic. How can accounting education be improved in light of new technologies? The Pathways Commission, co-sponsored by the American Institute of CPAs and the American Accounting Association, is one body hard at work on this question.

Work-life balance is also a key human resources issue for the profession. Auditing firms are establishing themselves as leaders when it comes to flexibility and family friendliness; many are included on lists of the best companies to work for. But there's work to be done. Firms will need to continue to explore nontraditional career models and ways to provide employees freedom to move between career paths. I have seen the benefits of this mobility firsthand through several of the CPAs that I have worked with at the CAQ; the CAQ's innovative Professional Practice Fellowship — under which auditors come to the CAQ from their firms for an 18-month sabbatical focused on policy work — has proven beneficial both for my organization and the careers of the Fellowship participants as they return to their firms.

Increasing Engagement with Important Stakeholders

An essential part of being poised for the future is engaging with other stakeholders in the financial reporting process. This engagement allows the profession to stay responsive to stakeholder needs — to learn and adapt as they evolve in a dynamic marketplace.

One area where the benefits of this engagement are clear is the important work of audit committees. The profession is advancing collaborative initiatives focused on ways to improve communication and the critical oversight role that audit committees provide.

For the auditor of the future, more of this engagement will be necessary. To quote another participant at the CAQ/Weinberg Center event last month: "It's extremely important that the firms and the regulators stay in touch with what's happening with the changing nature of business and technology… Auditors need to respond to the changing needs of investors and the market."

My take? Public company auditors will respond to those needs, as they've done before. With a focus on fundamentals, innovation, and engagement, the auditing profession will remain one that Henry Ford might have approved of: creative and thriving.

A securities lawyer, Cindy Fornelli has served as the Executive Director of the Center for Audit Quality since its establishment in 2007.