Against a backdrop of shifting market expectations, Mazars released an independent report titled The future of audit: market view. The report highlights ‘standout findings’ and myths about audit with 501 responses from 12 countries.
In APAC, reinvention of audit is about to mark a turning point in the history of one of the oldest professions. Auditors, like companies, are facing new issues and challenges in this region. Below, Rick Chan, Head of Audit & Assurance in APAC and Narissa Chen, Partner in Audit & Assurance in Singapore, react to the findings and share their insight.
What challenges do our auditors currently face in APAC?
The impact of the digital revolution, the rise of disruptive technologies, the appearance of unforeseen risks, new regulations coming into force, the transformation of economic models and recently, the health and economic crisis. In this context, new needs were born (e.g., cybersecurity, data analysis), some of which are supported by the auditor but not entirely within their scope of responsibility.
The disconnect between the real mission of the auditor and what stakeholders expect of them is a subject of intensifying debate for the profession. As a trusted third party and a close contact for management and corporate governance, the auditor’s main task has always been to opine or provide assurance on the financials of the organisations that have appointed them. However, in APAC, there are higher expectations for auditors to detect fraud and fight corruption (43% compared to 28% in Europe). We need to resolve this tension by having more open, transparent conversations about the objectives of audit.
Even so, this subject and the way of auditing are no longer the same as ten years ago. Despite the growing importance of APAC as a region pivotal to the world’s economy, the region is not entirely harmonised on international accounting and auditing standards. Audit is also valued more highly in some countries than others. Moreover, each local market brings with it specific challenges: infrastructure, data provisions, and business processes, to name a few. Most of all, how do countries ensure that regulation is balanced across all financial reporting players in the ecosystem, and not just a few?
Where is the innovation in audit in APAC today?
The rise of cloud computing, big data and analytics enabled and further intensified the success of collective intelligence, at a time when audit firms and multidisciplinary firms lacked the structural resources to gather it. This is consistent with our finding that 75% of PIEs show ‘strongly favourable’ attitudes towards new auditing technologies.
While tech is vital to the audit process, the survey also revealed that the professionals behind the screens matter more. When it comes to choosing an audit firm, knowledge of the business and an ability to understand the company environment come out top. This means to ride on the technological wave, having the right human capital is pre-requisite as technology is a means to an end.
With organisations rapidly moving into mobilisation of resources, integrating technologies and search for providers, we anticipate this need for innovation and augmented our services to include Technology and Digital Consulting. Kee Yin Lai who leads the offering at Mazars in Singapore, says, “The speed of integrating digital enablers into audit strategy and transforming data into insights will be pivotal in driving collective intelligence, enhancing work of the auditors, which in turn supports clients’ performance.”
How will the audit of the future look like in APAC?
Until ten years ago, auditors only dealt with samples of random events, which offered limited assurance. At first, the integration of data analytics solutions made it possible to instantly produce indicators and increase the volume of controlled data. This was a key step towards digitalisation in the profession.
However, it is the process mining and big data solutions that have allowed audit to enter a new era of deep and exhaustive data processing. This has benefited the quality of audits and therefore, the security of financial statements. By letting artificial intelligence suggest patterns of fraud or error based on history, audit could eventually become predictive, or even prescriptive.
With that said, a key finding in our report reveals technology does not replace auditors. It empowers them by giving auditors more avenue to analyse and challenge the data (96% of respondents are in favour). As a region that experiences dynamic growth, countries must ensure that regulation does not impede the audit of the future but keep pace with it.
How is the future of audit directly linked to our people?
Audit firms will grow more sensitive to candidates with real sector expertise and a broader vision of the world around them. When it comes to hiring an audit firm, members of audit committees have higher expectations. The report confirms that they are more particular about technical expertise than CFOs, and CEOs are more concerned with an auditor’s knowledge of their business and sector.
That is why as audit becomes increasingly complex, firms are coming up with business models to build multidisciplinary audit teams where each member could be a specialist in their respective subject areas. It is exciting as we find ways to leverage on collaboration across borders and teams with the objective of optimising efficiency, effectiveness, and costs. The audit methodology, nonetheless, must remain as the lingua franca to bring these members together to achieve the same objective – audit quality.
The trend towards specialisation and even hyper-specialisation of auditors will continue in the future. G. Arull, Head of Transport & Logistics in Singapore, says, “It is not enough for auditors to be technically competent – for example, auditors with a client in the transport and logistics industry need to have proven expertise in this sector.”
How will human capital change the future of audit methodology?
In terms of methodology, the auditor of tomorrow will act as a true multidisciplinary architect to design a personalised approach for the client. Therefore, they must have the skill and talent necessary to mobilise other specialists for support when required.
Auditors have a crucial role to play in improving the relevance and quality of audit. In APAC, home to emerging markets, the next generation of auditors is key to shaping the right future for audit. They will need to evolve in order to meet the expectations of financial markets. Part of an auditor’s evolution is to understand each company on its own – because not every business is the same, replicating an audit like “one size fits all” no longer works. They have to listen. Listening is also the most important skill to being a good auditor, according to the survey’s respondents.
Opportunities lie where challenges are faced. To capitalise on these opportunities, audit must continue its transformation by exploring the three powerful levers at its disposal: technology, human capital, and collective intelligence. This mix is the real asset for clients and the profession. This is especially true for APAC, where rapid growth in sub-regions will create key differences that require a unique approach.
To find out more about the global results and read our global report go here.