Hey Bill, thanks for joining me today.
I think a lot of people are interested in how auditing is changing and, given your job title, it seems as though you're a good person to speak to that change. Can you tell us about your role as PwC's leader of audit transformation and what it entails?
Thanks Caleb, as a regular reader of Going Concern I am excited to now be a part of "the story".
While PwC has always challenged the way we execute our audits, about 4 years ago I was asked to take on a newly created role as the Managing Partner of Audit Transformation. Immediately we realized we needed to focus our efforts to "standardize, simplify and/or automate" virtually everything we do. Our attention was directed to three principle areas: technology (automation and leveraging our clients data), improving our processes/approach and finally strengthening the experience for our people & clients
In addition, you should know that I am the Lead Audit Partner (signing responsibilities) for a large multi-national client and thus I get to experience first hand our transformational activites
Okay, so I think a lot of people are interested in the automation and technology aspect because auditing has been considered a commodity service for quite a while. That is, methodologies were not vastly different and the result -- the auditor's opinion -- was the same.
Did you feel that way prior to taking on this role? Is part of the reason you took this job was to -- pardon the expression -- MAKE AUDITING GREAT AGAIN?
Let's be honest here, the relevance of the audit has always been there and will continue to be present and while there have been changes over the years to the process & approach, the basic fundmentals of the audit havent changed for decades.
However, with the rapid movement of technology and the changes our clients are making in their own businesses & operations, it became increasingly necessary to change the way we deliver our services. We needed to adapt our approach to ensure we preserve quality, deliver insights to our clients and avail opportunities to our people at an earlier stage in their careers. Technology was clearly a "first look" given investments made by our clients and expectations of our people.
So to specifically answer your last question - YES, I am motivated to change the way we audit and am excited about where we are today and where we are headed
The notion of audit quality is an interesting one. Both the PCAOB and CAQ have released lengthy documents on the subject, however, it's still seems as though it's a difficult concept to articulate and measure.
Can you talk about how audit transformation will improve audit quality and also how it might create ways to measure it?
In thinking about quality, PwC has made solid progress at improving our quality results (internal & external inspections). To that end by transforming the way in which we audit (eg, leveraging technology, client's data and improved processes), we have focused our efforts on automating and creating alternative delivery solutions on routine, high volume, non-judgmental transactions. This has allowed our people to dedicate more attention to reviewing the outliers/exceptions while also affording them the opportunity to dedicate time to those audit areas which contain significant estimates and require judgement.
This last point has also contributed to an improved experience for our people given that they are exposed to more challenging activities earlier in their careers.
Audit quality has been and will continue to be our top priority and these efforts are intended to sustain and build on our recent progress.
I think there a couple of interesting things in there that you mentioned (I'm revisiting the automation bit here):
1) "automating and creating alternative delivery solutions on routine, high volume, non-judgmental transactions"
Do you think technology will progress to the point where we testing 100% of a company's transactions is not only possible, but customary?
And 2) Because audit professionals can set aside the high volume work to focus on exceptions and areas requiring more judgment, could artificial intelligence and/or rigorous analytical tools allow for future audit engagements to expand their scope to areas like fraud detection or absolute assurance? (I realize that last concept is sorta crazy.)
By leveraging data, in certain instances TODAY we are able to test 100% of a company's transactions. Now that isn't intended to imply this is all that is needed to audit an account balance. By that I mean we as an example, we can verify that all transactions have shipped and determine the period of such shipment (testing cutoff) but there are other elements that go into auditing revenue. As an example, auditing the terms & conditions, allowances, returns, etc... are also areas that must be addressed. Further, by leveraging our data auditing techniques (our proprietary tool we call Halo) we are able to analyze whole populations of data to identify anomalies (including areas that may be more indicative of an occurrence of fraud) and assess risk to focus our testing. So while I don't believe you will ever be able to fully automate 100% testing of financial statement line items, there are possibilities to test 100% of certain components.
As to your second question, as you can appreciate, you can never fully take the human element out of the audit process. Areas like judgement and professional skepticism must always be present. But that said, at PwC we are anticipating AI and robust analytical tools will be a part of the audit effort in the very near term.
I know that you have to run, so thanks for your time. One last question:
With all these changes coming to auditing, how can young accountants (students and professionals) best equip themselves with the right skills and knowledge? Should technology be more of a focus? Will the education foundation need to evolve along with the profession?
Sorry, that's three questions (good thing I got out of accounting). Thanks again, Bill, for your time and responses today.
You can follow Bill on Twitter at @Bill_Brennan2.
Caleb - this was a great exchange and happy to close with one about our people and future staff.
There is no doubt that the skills required by our current and future staff will require change over the near term. The training and educational requirements are already being influenced by things like data auditing, data analytics/analysis, cloud computing and data security. In fact, these are courses my daughter (a college senior audit/accounting major) will be taking as part of her MBA program next year. Our people will also need to develop their review, supervisory and project management skills earlier in their careers.
So we are already working with Universities to ensure they tailor their curriculum for these transformational changes. This movement is not only critical, but it also presents great opportunities for enhanced growth & development.