Podcast: Technology Means Transformation for Audit Sector


Patricia Cummings, chief risk officer and a managing partner at accounting and consulting firm Citrin Cooperman, discusses how technology is transforming the accounting and auditing environment.

Artificial intelligence, data analytics, and blockchain are changing what aspiring auditors should know—as the industry looks for “critical, strategic thinkers.”

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Amanda Iacone:

From Washington. This is Talking Tax. I’m your host Amanda Iacone. This week we’re talking about the shifting technology landscape. It’s not just changing how auditors work, but the skills that they need to do that work. The admin of technology like artificial intelligence, data analytics, tools, blockchain, all have implications for standard setters and the companies that auditors are working with alike. I spoke with Patricia Cummings, the chief risk officer in managing partner of industries for Citrin Cooperman, about how accounting firms are taking on the challenges and opportunities that these tools bring and how they are preparing their staff to take on the audit of the future.

Pat, you and I last spoke in August. We were talking about the changes that the profession is considering to the requirements to earn a CPA license. And we were talking a lot about technology and you said at the time that that auditors can’t just audit around the computer systems anymore, that they will need to understand the underlying technology in order to perform the audit, in order to issue an audit report. And in order for a partner in particular to feel comfortable in signing off on that audit report. Bill Reed, the chair of the AICPA says something similar, he used blockchain as an example that you can’t just audit the content on the blockchain. You have to be able to audit the digital ledger system itself. Where are we today? What tools, techniques, are auditors using in their everyday practice right now?

Patricia Cummings:

Right. So as you said, tomorrow will look dramatically different than today. And this is very true, especially for the auditing profession. Technology is obviously moving exponentially, which is adding to the disruption in our complex and changing world. And disruption is creating immense opportunities. So what are we using today? You know, we’re starting to use artificial intelligence. We’re obviously starting to use the cloud. We have audit software that we’re using, but we know that they’re going to be significant improvements and advancements given the fact that technology is moving so quickly and profoundly. Just transforming the auditing industry and profession. So as an example, artificial intelligence, it’s really helping us to automate complex and repetitive tasks and processes. It’s also very accurate. So this type of emerging technology supports the transitional role of today’s auditors from being process oriented, ticking and tying to becoming very critical strategic thinkers.

The cloud, we can perform our work virtually anywhere, work with our clients, exchanging work papers, exchanging information through the cloud. Cloud-based computing opens up a new way for auditors to work with their clients and we can spend more time with our clinic clients engaging on key business issues rather than the mundane ticking and tying processes. And audit software, again, we’ve been using electronic audit software for years, but it certainly has come a long way since its early stages. Today’s programs are helping us provide a very high degree of accuracy, and it’s reducing the margin of error.

Amanda Iacone:

You’ve mentioned previously that a lot of these newer tools that are coming online really require auditors to bring their critical thinking to the table. Why is that so important and how is that different than the professional skepticism that the profession has always required?

Patricia Cummings:

Well, I don’t think it’s changing professional skepticism. We all still, that’s the foundationally we all, as we’re performing audits, we will have to have a high degree of professional skepticism. As auditors, we need to change, but the standard setters needs to change also. So as auditor of the future, we should be focused on leveraging technology to test entire populations of data. We’re not going to have to sample anymore. Sampling in a few years will be something of the past. Because of the availability of the data, we’re going to be able to test 100% of populations. As auditors, we’re going to continue to embrace technology to perform most, if not, all the tasks that until now we’ve been performing with staff hours in a processing mode, so no more ticking tying bashing people at a lower level working around the clock. Technology is going to handle, should be able to handle, all of this for us instantaneously. We need to also understand what the users of our audits want. Undoubtedly, in the future, they will want auditors to provide assurance on much more than just the financial statements in the future. I envision a time when there’ll be a technology will force us into a more continuous auditing mode.

Amanda Iacone:

In other words, if you’re not burdened by a lot of the mundane tasks that auditors today are faced with and still required to do, it frees you up to do what? It allows auditors to do what for their clients?

Patricia Cummings:

Yeah, I think it allows time to be more strategic thinking, to look at the data, to analyze the data, to help us help our clients understand where they are, where their key KPIs are in comparison to their competitors, to really bring the value add as opposed to just issuing one report with one date on it. You know, on historical financial statements that could be three, four, five, six months old. So really adding value to our clients as they’re running their business.

Amanda Iacone:

So talk a little bit about understanding the underlying technology. Your clients are using technology, their software systems are changing. Why is an auditor, does it matter what that system looks like? How that system functions?

Patricia Cummings:

Right. So emerging technologies, as you said, are really changing, altering the financial reporting environments of our clients, and the change is accelerating artificial intelligence, robotic process automation, blockchain, changing the way our clients are doing business and auditors need to transform their own processes. As we mentioned not long ago, a couple of years ago, audits could be performed by teams of accountants scouring through reams of paper and financial information. So it wasn’t that long ago that we were sitting at our client’s location with, you know, ledgers and 16 column workbooks. That doesn’t happen anymore.

Amanda Iacone:

I want to talk about the skills gap. We know from the AICPA’s latest hiring report that accounting firms in general are hiring fewer accountants. They’re hiring computer developers, they’re hiring engineers and data scientists to supplement their accounting staffs. What does that mean for firms today and auditors who are already working in public accounting? I mean how, especially for you know, that mid-tier firm, how do they compete for skills for staff? I mean, are you seeing that in your own firm in terms of the types of people you’re hiring?

Patricia Cummings:

Sure. Bridging the skills gap is a challenge for the profession. As you probably know, PwC recently announced that it was going to be spending $3 billion over four years to improve the technology skills of its workforce clients and even students who live near their offices worldwide. Now, obviously my firm and most of the firms outside of the Big Four can’t make this level of commitment, but we all need to understand the challenges and react accordingly. And firms are also being supported by educators and the profession as they work to face this challenge. So as it relates to academia, it’s important for current accounting students, future auditors, to be knowledgeable about the evolving world of technology. As you mentioned, all firms are looking to hire top talent who have the abilities and science, technology, engineering and math, along with the ability to work with large quantities of data and possess strong analytical skills. We in fact are interviewing a person at five o’clock that is really a technologist with their sweet spot being in the area of data analytics. Because as a profession, this is so important to us.

Amanda Iacone:

But I wonder what about existing accountants, people who are already working there, how do you, how do you help them? How are they helping themselves? I mean this isn’t going to wait until the current generation of accountants that are already working, retire, right? This isn’t just about newcomers. What about your staff? How are you helping them prepare and be comfortable using all these new tools?

Patricia Cummings:

Yeah, I think it’s a combination of self-study. It’s a combination of certifications, picking our best and brightest and putting them through certification courses. A couple of our folks are going through programs to become certified in data analytics. Again, we’re working with the AICPA on developing new technology audit software, Daz. So having people involved in that project on all levels where we have people involved on the stakeholder group, we have a person that’s involved working 50% of her time on an audit methodology committee for that particular project. So it’s staying involved, and again, it’s a lot of education internally, education through the outside world and making sure that people that are interested in keeping up, are keeping up. Unfortunately, you know what I think is that a lot of people, especially people of an older generation, in a few years, you know, they might raise their hand and say, you know what, this isn’t for me. The world has really changed a lot and people are moving, moving away, and going for early retirement. But I think for those people that want to stay engaged, that want to stay on the forefront of technology, that are motivated and have the fire in the belly, there’s lots of opportunity to get in front of the disruption that’s happening in the profession and in the world for that matter.

Amanda Iacone:

I want to turn back to technology that we’re using today. I wonder if you could talk a little bit about implementation. So you’re rolling out a new tool or new techniques. Are there any pitfalls that you know, that accounting firms might encounter as they’re rolling these out? I mean, how do you work through managing, changing to a new tool, changing to a new technique, tips and pros and cons of implementation.

Patricia Cummings:

So while obviously emerging technologies are going to bring great opportunities and efficiency for Citrin Cooperman, they obviously are going to bring great challenges. Recently I was looking at a survey of public accounting firms and three out of four firms still feel uncertain about their ability to have anytime, anywhere access to technology solutions, being able to find the right combination of solutions to serve clients and being able to fully utilize new technology as it’s developed and addressing new services. So look, for all of us for the accounting profession, I think change management is going to be key. And we have to understand and appreciate that mistakes are going to be made and we can’t be afraid to course correct when necessary. But as I’m thinking about it, you know, it’s really the change management and it’s also going to be the commitment of time and resources that are going to be significant in rolling out the new tools and technology. So with the resources of money and people and talent, we need the commitment from leadership. We need HR commitment, we need IT commitment, we need learning and development staff commitment. So look, it’s going to take a lot of time, a lot of money, a lot of commitment, but these tools should obviously also provide a great return on our investments.

Amanda Iacone:

And so what does all of this change mean for your clients? I mean, they’re experiencing this technology pivot, but on the opposite end, they’re on the receiving end of all these new tools and techniques that auditors have available now. What is it like for them?

Patricia Cummings:

I think it’s, you know, it’s difficult for, for our clients, right? Because as difficult as it is for us, they have to change too. You know, in terms of impact for our clients. As I said before using new technologies hopefully we’ll be able to provide more meaningful value added insights and services to management. The tool should enhance the audit by automating the time consuming tasks that we talked about before, the tasks that are more manual and route in nature. For example, using artificial intelligence or robotic systems, we could interface with our client’s systems to transfer and compiled data automatically. Something that was previously done by staff accountants with the help of our clients’ staff.  Other areas where technologies may introduce efficiencies, including, processing of confirmation responses, physical inventory, observations.

I was at a meeting the other day, they said, “Oh yeah, we’re going to be using drones to do physical inventory observations.” You know, look, it’s gonna be different. You know, I think things are gonna continue to move fast. But as auditors, I think the one thing that’s going to be key is that we will never and should never, take our eye off the main event. And that means that we can never we could never take our eye off the fact that first and foremost we need to focus on audit quality because without quality, we as accounting firms have nothing.

Amanda Iacone:

Well, speaking of audit quality you know, it seems like anytime there’s a prepared restatement or some sort of fraud investigation, the question is always where were the auditors, right? Why didn’t they see it? Why didn’t they catch it? You know, we saw this after Enron and the financial crisis, we’re starting to see challenges related to the reporting of environmental liabilities. You know, the Exxon case is happening right now as we’re speaking. So how do all of these new tools affect audit quality? And we’ve touched on that a little bit, but also the expectation, right? The expectation around the purpose and even the scope of the audit. How does, how does it change that landscape?

Patricia Cummings:

I think that’s a pretty interesting question. Especially when we’re going to have all this data available to us. That, you know,  we’re going to be doing 100% testing on some populations, but I think, I think we can never forget that an audit is not designed to detect fraud, and if there is a fraud, we may not catch it. You know, obviously that’s not the purpose of an audit. But I think using technology using analytics, being able to look at a lot of trends I think it will enable us to perhaps do a better audit. If things don’t look right, it will pop out at us more readily. So I think the technology will help us perform a more efficient and effective audit. However, I just want to reinforce the fact that an audit is not designed to detect a fraud.

Amanda Iacone:

Long term. We have an idea where the audit profession is going, but what’s the next maybe stepping stone on the way to the audit of the future?

Patricia Cummings:

I think, look, we’re you know certain of our clients are starting to use certain of the new technologies for auditors. Blockchain when combined with other innovations are going to radically change our profession. Because accounting records contain highly structured sets of data. Blockchain technology is perfectly suited for our profession. Firms that are not continuing to be on the forefront of learning and testing ways to adopt these new technologies certainly risk getting left behind. As an example, certain of our clients are starting to use the blockchain, especially certain of our clients that are getting more and more involved with cryptocurrency. Our IT professionals have been key with others in modifying our audit approach for these types of clients. However, it’s just the tip of the iceberg going forward rather than audits being performed at regular interview intervals. Blockchain and other technologies certainly present the possibility of a true continuous audit with continuous audits. As I mentioned before, when I was thinking about how things could change trends and missing data could be identified much earlier. Allowing for problems to be proactively addressed rather than reactively reported. So again, I think that we’ve just hit the tip of the iceberg and I certainly believe that big changes are on the horizon for our profession.

Amanda Iacone:

Well, there’s a lot more we could talk about as it relates to the changing technology landscape for auditing, but I will have to leave it there for today. Thank you Patricia Cummings, chief risk officer and managing partner of Citrin Cooperman. So glad you could join today.

Patricia Cummings:

Thank you Amanda.

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