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This article was first published in the January 2017 Malaysia edition of Accounting and Business magazine.

Today’s economy and business environment are more dynamic than ever before. Against a backdrop of globalisation, the digital age and increased regulation, there has never been a greater need for a robust audit process to underpin and enhance economic growth. To gather insights on the value of audit, ACCA recently co-hosted a half-day seminar with the Malaysian Institute of Accountants (MIA), on what auditing in the future should look like, and the challenges ahead for audit professionals.

In her welcome address, Leong Soo Yee, ACCA director – Asia Pacific, stressed that ACCA was driven by the conviction that the role of audit was critical to the economy. ‘Financial crises over the last decade have only emphasised the fact that audit is absolutely vital for engendering trust in business,’ she said. ‘But the role of audit is becoming a divisive issue.’ Adding that audit was valued more highly in some countries than others, she identified a few elements which she said would have long-lasting impact on the auditing profession, such as new technologies. However, while technology can enhance audit, could it replace auditors?

‘Data and analytics techniques are transforming audit by allowing the analysis of much bigger data populations,’ Leong said. ‘But ACCA’s own research has found that CFOs believe finance delivery still requires a significant amount of manual labour. Despite improved systems, software and scalability, the work remains. Plus, professional scepticism and judgement in audit cannot be emulated by robots.’ Auditors today are under great stress to provide valuable insights about many factors related to the business. ‘Modern-day audit can prioritise better risk assessments, heighten professional scepticism and achieve greater audit quality,’ she emphasised.

The seminar also heard  the overview and key findings of The Future of Audit, a report jointly undertaken by ACCA and Grant Thornton. The report was the result of a series of roundtables in China, the EU, Singapore, South Africa, the UAE, the UK and Ukraine. Presented by Andrew Gambier, ACCA head of audit and assurance, the session on the future of audit approached the topic from the perspective of auditors, preparers, regulators, academics and thinkers. Gambier, one of the report’s authors, said the roundtables agreed that audit had a future but that there was a stark difference of opinion on its value among developed and developing countries. He added: ‘In countries where audit is less developed, audit is seen as an enabler of growth that reduces the cost of capital and underpins trust in business. Building capacity in audit is seen as a top priority.’

In developed countries where audit has been mandatory for some time, there is an active move towards exemptions, said Gambier. ‘While audit for larger companies and listed entities is seen as important, its value for other companies is questioned. Finance providers get little additional information from the audit report and have other ways of satisfying themselves of a company’s financial background.’ 

Areas of concern

As the scale of cross-border trade, flow of capital and spread of technologies intensifies, globalisation was identified as a key factor affecting the future of audit. Gambier stressed that in tandem with globalisation, there has been a move towards greater harmonisation of auditing standards as well as financial reporting standards. Yet a one-size-fits-all approach to standard-setting does not suit the needs of all business entities. He pointed out the challenge of introducing a set of high standards for large companies while maintaining a more basic set for smaller entities. The International Auditing and Assurance Standards Board’s (IAASB) recent decision to consider principles of scalability, allowing standards to be implemented easily on the audits of entities of all sizes was, he said, a step in the right direction. He cited ISA 701, Communicating Key Audit Matters in the Independent Audit Report, as an example of scalability as the standard does not apply to unlisted entities. 

The influence of the digital age was also singled out as a key factor. Often seen as a disruptive force that has succeeded in unsettling traditional methods, technology can also be an enabler. Gambier pointed out the increased use of audit software to improve efficiencies and ensure consistency across myriad departments and businesses. This allows easier monitoring of reports and the overall review process.

Lee Tuck Heng, chairman of the MIA Auditing and Assurance Standards Board, pointed out the value of data analytics to the audit process: ‘Currently, the common approach to audit is by random sampling which relies on chance to capture any outliers. Data analytics then becomes a powerful tool because it enables us to gather a data sampling of 100%, which we are able to test quickly. Furthermore, it can produce data visualisation that is more effective in delivering the messages required by auditors and to management.’

Scott Layton, director of audit and investigations at IBM Asia Pacific, commented that digital developments could not replace professional judgement and scepticism in the audit reporting process.

‘While we need to leverage on technology more, there’s always going to be a human component in audit. Technology will allow us to extract specific at-risk transactions which we can then check in greater detail,’ he said. ‘I think we’re going to see more combinations of audit with investigations as issues such as fraud become more complex. At IBM, as we think about how to address fraud and handle investigations in a systematic approach, our investigators are starting to work like auditors and be more proactive in trying to find fraud as opposed to waiting for an allegation to bring us to possible fraud.’

Greater regulation of audit also has the ability to change its future, added Gambier. As public expectation of audit rises, so does regulation, although some countries have introduced an audit threshold to prevent regulation becoming a burden on smaller companies.

What has become obvious from market trends is that auditors will need a wider skillset in future. ‘Besides digital skills, they will need emotional intelligence, the vision to predict future trends, and the experience to understand what companies need,’ he said. 

Gambier said the roundtables that informed the ACCA/Grant Thornton report told them many new things, including that audit develops at different speeds in different countries. ‘So we cannot expect it to be the same the world over,’ he cautioned. ‘Services, too, have developed, and frequently-changing standards are a challenge to small firms, which don’t have the resources to keep up with the constant changes.’

During the panel discussion Hooi Kok Mun, audit practice leader, SJ Grant Thornton, said that stakeholders wanted more detailed information at a faster pace. ‘If we do things the same way, we won’t fulfil this need.’ While auditors would feel increasingly stressed, he said, they would still be needed. 

Tan Sri Ambrin Buang, auditor general of Malaysia, stressed the importance of audit in engendering trust: ‘Where public resources are concerned, the demand for public-sector auditing will only increase. Compared to the private sector, our stakeholders are numerous – covering members of parliament, the public and media – and they are becoming more vociferous. Hence the duty of care for protecting public funds lies with us.’

On key audit matters (KAM), independent non-executive director Datin Sunita Rajakumar urged engagement with auditors at the earliest opportunity possible, rather than at the end of the year. ‘Be ready,’ she cautioned. ‘New information cannot be included in the new audit report. Auditors may already have matters they want to raise. Work with internal auditors on this; don’t be caught on the hop at year end – build the KAM list ahead of time.’ 

The panellists agreed that increasing business complexities, harmonisation of global standards and greater regulation – such as the implementation of KAM – are but a few of the challenges faced by auditors today. As Tuck Heng put it: ‘Auditors have a choice; do we want to be on the train of progress or be left behind on the platform?’

Majella Gomes, journalist