If you made a Big 4 drinking game and included the words Big Data, Cloud and Analytics, you’d be in the hospital before you logged your first eight chargeable hours of the week. These all started as leadership buzzwords, but in reality they’ve started to gain real traction, at least in my firm. It may sound cliche but the audits of the next ten years are going to bear little resemblance to the audits we do now. Our tried and true substantive analytics and tests of details will have no place in these future audits. The firms are starting to realize that these procedures are no longer effective nor efficient. Yes, I do understand as a profession we’re about ten years behind realizing what the Internet commenters have been telling us, but better late than never.
The future of audit
What makes me think the next ten years will be any different than the last ten years? Two words - electronic workpapers. For the first time in history we have an easy way to gather data from across all our audits and employ that data in useful analytics, subject to the client’s agreement in the engagement letters. When you combine this with data available from our other practices and externally available data, we have a fairly sizable database of information. This will not only change our audits but allow us to give our clients perspectives on where they sit relative to their competitors, industry and larger markets as a whole. None of this impairs our independence and actually provides value to our clients, which is something they’ve been begging us to bring to our audits for years.
What does this mean for the profession besides a bunch of new buzzwords and audit workpapers?
95% of partners and managers are unprepared and unable to make this change1. We shouldn’t be surprised since this group had a hard time switching to electronic workpapers and that mostly meant learning one new program and refining their Word, Excel and PDF skills. This sweeping change is going to encompass a whole new set of skills and while this group is intelligent enough to understand the concepts behind big data analytics, there is a resistance to, and frankly a fear of, change. The biggest question they always have is “Has the PCAOB signed off on this?” This group has been burned too many times before by firms implementing procedures to make our audits more effective and efficient only to run down the inspection path and have the PCAOB shit all over these changes. When you consider that this group is not known to be risk takers and early adopters of change, they are going to be very slow to accept what this could mean for their audits and the profitability thereof. They may talk the talk to their clients about these services but the first partner to get a whole set of workpapers built around statistical analysis and analytics is going to ask where the hell the search for unrecorded liabilities is.
95% of seniors and staff are unprepared for this and only slightly more able to make the change than their experienced brethren2. The prevailing wisdom is that the younger generation is better at all things technological but in the accounting profession that doesn’t necessarily hold true. While folks 2-3 years out of school may text better than a partner, a majority of those with accounting skills aren’t exactly tech geeks. This is why we have Excel trainings on Going Concern that started with some of the most basic functions. Staff can barely use Excel to create a budget let alone pull together a pivot table and some of them probably think VLookup is a dating app. They have a long way to go before understanding complex data analysis.
Listen up, kids
Kids in school, I sure hope you have more than an accounting degree coming your way. If I’m sitting across the interview table from you I’m not going to be too concerned with how well you did in your intermediate accounting or auditing classes. None of that really means anything since we’ll be shipping the work that needs these entry level skills to our professionals in India. What I’ll be looking for now is some depth. Hopefully you have a minor in, or at least some damn classes in, computer science and/or statistics. Even if the only thing you have ever done was program a website for your dog, at least you know your way around a little HTML. If you are lucky, you’ve been exposed to a SQL database and you can understand how the data at your client, and your firm, is being collected, housed and spit out again for others to use. Preferably I’d like you to have the stats background too, even if it’s only a passing understanding of what standard deviation is because those two words are going to mean more than “Accumulated Depreciation” will in the future.
The above might even be a moot point if you happen to be in the US and employed by an audit firm because all of this is going to end up in India or some other country with a lower cost of business than America. Since it’s all feeding a bunch of data into a program and compiling what it spits out, all of that leg work will be done by these offshoring centers. The only thing left is analyzing the output and interacting with clients and even those duties are starting to move to another country. It won’t be long until all of the major firms have audit teams with a majority of their staff, and perhaps a manager or two, in India. The best chance you’ll have of retaining your onshore job is working on clients who contractually can’t send stuff out of the US.
Will this all play out exactly like the above? Probably not. I can tell you my firm is showing some of the most forward thinking around this topic that I’ve seen from them in my time there. Usually we just react to whatever the regulators and standard setters throw at us but this time we’re trying to, for lack of a better term, head to where the puck is going. Personally, I’m hoping when we get there the puck is on our sticks because it will ultimately mean more money for all of us if we get there first.
1 This figure is completely made up but based on my personal experience and likely more accurate than any actual study since these guys don't like to admit they are clueless
2 Refer to Footnote 1