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Audit and innovation – what is the new normal?

COVID-19 has changed the way that we live our lives beyond recognition. Jamie Tomlin, Chair of the LSCA’s Technical Committee, asks if the virus could permanently change audit for the better.

May 2020

Recent events have thrown the world into disarray. We are either working away from our usual environment, working longer hours, or not working at all (what odds furlough being one of the words of the year?). And where we, as auditors, are working we face new challenges. Obtaining and assessing audit evidence means we must ask questions about what is acceptable and is it permitted under the ISAs? Applying scepticism is much harder with remote auditing. And how do I document my scepticism for an inventory count which I did not attend in person but electronically?

The ISAs were drafted without contemplation of the current environment and the issues auditors are facing. I believe we are just about hitting the required quality, although we won’t know for certain until the various external reviewers report their findings on this seasons audits.

Innovation in the face of adversity? 

But the question that I want to ask is, despite all the problems could something positive come from this? The longer we face restrictions, the greater the challenge and the more innovative and creative we become. We are seeing it in other businesses, where focus changes from bricks to online, from dine-in to take-away, from fashion and formula 1 motor racing to personal protective equipment and ventilators. These changes have been impressive and rapid, and show great versatility and agility. The longer the world is fighting this virus, will we see changes in the way audits are conducted?

The battle against Covid 19 has been described as a war and it is in such times that creativity can be at its most imaginative. Will auditors follow this trend and be imaginative? Will this push auditors into thinking about how they can best obtain evidence in a way that previously would only have been given lip service? Under “normal” circumstances, despite best efforts, auditing has tended to evolve slowly. Under the new normal, where normal is most definitely not normal, we are forcing ourselves into making greater use of technology to conduct remote visits, be it inventory counts, asset inspections or reviews of component auditor files, to thinking about what documents we need to see and what format is acceptable. Changing behaviour changes behaviour.

Going concern presents challenges perhaps not seen since the 2008 financial crisis. Questions must be asked about the impact of the restrictions. What will be the effect on the entity, how deep will the downside be, how long it will last.  And when restrictions end, how quickly will activity return to more “historic” norms? And even then, in the absence of a vaccine will we see a cycle of restrictions, prompting businesses, and their customers, to respond with periods of intense activity followed by a smaller down turn as restrictions may again be put in place? Auditors may need to follow suite, with changing both the way and when work is conducted.

I believe there will be major changes in the way some businesses operate once we fully emerge from this pandemic and audit may be one where change begets change. Nothing can make up for the human tragedy this virus is causing, but what emerges could be a very different world.

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