Financial Statement Audits in a Post-COVID World

The COVID-19 pandemic has significantly impacted the way professional service firms interact with and deliver services to their clients. Early in the pandemic, CPAs and other professional service providers had to quickly pivot and learn how to collaborate with clients in a mostly virtual environment. While physical restrictions have been easing, the lessons learned in the sudden switch to a virtual service delivery model have brought remote auditing to the forefront and with it, the efficiencies that CPA firms can continue to leverage in a post-COVID world.

While remote auditing is not a new concept, advancements in technology have provided auditors the ability to collaborate with clients and execute audit procedures from almost anywhere. CPA firms that heavily invested in available technologies such as electronic work paper storage, file exchange tools and collaboration applications such as Zoom and Teams were, by and large, able to successfully deliver on audit and compliance services on a remote basis without significant impact to delivery timelines. Below are five examples of how auditing has adapted to the COVID-19 environment, which is anticipated to continue and evolve in the post-COVID world.

Planning
Increased collaboration between auditors and clients has been and will continue to be needed to plan and execute a timely and efficient audit. Many companies have moved toward a remote working or hybrid remote/on-site model for their employees, so understanding when and how to best communicate with key employees during the audit process has become a larger planning discussion. Additionally, as companies implement these various remote work models, auditors will need to gain an understanding of the impact of remote work on the internal control environment. This could result in new or increased audit risks that will need to be addressed in the audit plan.
Data Sharing
Before the pandemic, many companies and CPA firms were investing in technology tools such as electronic document storage, secure file exchange portals, video and chat applications (Zoom, Teams, etc.), and cloud-based accounting software to name a few. The pandemic not only accelerated this trend but also forced companies and CPA firms to increase the utilization of these tools and learn how to better leverage their capabilities. The level of investment in these tools varies across companies, so understanding the availability of these tools will in large part dictate the approach to the audit and efficiencies that can be realized.
Audit From Anywhere
The impact of auditing during the pandemic has further-reaching considerations than simply where, when and how an audit will be executed. There also exists the potential for significant changes in who will perform these audits. Beyond the benefits of automation (discussed below), the ability to audit from virtually anywhere has expanded the talent pool available to CPA firms. While the concept of outsourcing and off-shoring staff is not new to larger CPA firms, smaller firms can now benefit by offering remote work opportunities in regions beyond their physical footprint. If executed correctly, the result is a more knowledgeable and efficient audit team that can provide value-added consultation and services to its clients.
Physical Inventory Observations
The need to be physically distanced during the pandemic presented a significant challenge when it comes to auditors observing physical inventory counts. Creative solutions were needed to allow auditors to gain a comfort level on the existence of inventory. This is another area where better leveraging of available technologies played a huge role in fulfilling this critical step in the audit process. Virtual observations via Zoom, with the use of webcams via smartphones, body cameras and even drones allowed auditors to observe inventory at manufacturing facilities and warehouses from virtually anywhere. While the need to be live at client facilities to conduct inventory observations will never completely go away, the ability to conduct these observations virtually in the right circumstances can result in increased efficiencies and/or reduced costs.
Automation
While audit automation software is still an emerging technology, the increasing availability of “big data” has given auditors the ability to analyze large populations of data more efficiently. This has resulted in an audit process that is more targeted toward identifying and auditing “high risk” balances or transactions. As artificial intelligence (AI) continues to be integrated with audit automation tools, audits will become more streamlined and effective. There is also the possibility that audit automation tools will allow for continuous auditing in the future, where the AI built into the audit software will process thousands of transactions and journal entries and identify unusual or potentially high-risk transactions in real-time. This would allow for the timely resolution of errors and misstatements, resulting in more accurate financial reporting.

The pandemic has taught us new and innovative ways to execute audit services more efficiently while still delivering a high-quality product. While there will always be a need for some live interaction, especially given that professional services are a relationship-based profession, the lessons learned from mandated physical distancing will continue on into the future as CPA firms focus on continuously improving the audit process and move toward providing value-added advisory services to their clients.

About the Authors

Kristian R. Barr
Kristian R. Barr
CPA, MSA
Senior Manager, Assurance and Advisory

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