Technology, Planning, and Communication Are Key

The COVID-19 crisis has compelled most organizations to adapt quickly to new ways of doing things, and for many businesses that includes making the leap this year to a financial statement audit that is performed remotely. With shelter-in-place orders and social distancing currently in effect, remote audits offer a way to protect your staff and your auditors while fulfilling your audit requirement.

The capability to do remote audits has existed for some time, and the technology necessary for remote auditing is already in use by many audit firms. But the annual audit traditionally has presented the opportunity for important “face time” between audit firms and clients and, in many cases, both sides have been reluctant to give it up. As such, widespread adoption of remote auditing has remained elusive until now.

The COVID-19 crisis has changed all of this at least for a part of this year, and organizations that have been reluctant to embrace remote auditing are discovering its advantages.

Will my Stakeholders Accept a Remote Audit?

An audited financial statement that results from a remote audit is no different than one that results from an onsite audit, and the data and opinions contained in them are equally valid in the eyes of bankers, board members, shareholders, investors and other stakeholders.

Auditors comply with standards set by national bodies such as the Auditing Standards Board of the AICPA and accounting standards set by the Financial Standards Accounting Board (FASB), said Alan Anderson, founder of ACCOUNTability Plus and a former AICPA Senior Vice President.

“An auditor must perform procedures to enable them to provide reasonable assurance and obtain appropriate audit evidence. There is nothing in the standards that says you must be on site.”

Anderson, who has helped many accounting firms adopt the technology and procedures best suited to remote auditing, believes that “remote auditing is here to stay.”

The COVID-19 crisis may have made the decision for you this year, but if you are considering a permanent shift to a remote audit, a successful transition will likely rest on matters of technology, planning, and communication.

Remote Audit Considerations

  • Technology, planning, and communication

    Successful remote audits happen when there is a good relationship between technology and communication. Detailed audit planning and communication are essential to any audit, but they become even more important with remote audits to ensure a smooth workflow.

    While this year’s crisis may result in your auditor following substantially the same practices remotely as in previous onsite audits, don’t be surprised if things are more streamlined next year – should you decide to repeat a remote audit – as the technology is leveraged for a more streamlined, efficient remote audit process.

    Tools used to extract data will be put to use more effectively. In addition, there is artificial intelligence (AI) technology that will transcribe meetings for files and video and audio recordings will be used in place of forms. “Young CPAs use their phones for everything, and they will figure out additional ways to use them to help in the audit process,” Anderson said.

  • Moving functions to a virtual platform

    The move to a completely remote audit may not feel as dramatic as you think it will. Consider how you have interacted with your audit firm in previous years. Or your bank. Or your attorney. Is every document, every contract or every monthly statement exchanged as a paper file that is hand delivered or placed in an envelope and mailed? No, and if one of your advisors insisted on working that way in the 21st century, you would seriously reconsider working with them.

    In reality, much of the work that goes into an audit already is virtual. You upload documents to a secure portal, or the auditors email a list of questions to you and you respond by secure encrypted email. Even the final audit report and set of financial statements is delivered electronically in PDF format.

    You may have a face-to-face meeting with the audit principal in charge of the engagement at the beginning of the audit process and again at the end when the financial statements are presented to your board. These are productive meetings that solidify your relationship with the audit firm and, in the best of circumstances, provide you with actionable insights for improving your organization’s financial management.

    But even these meetings can be done virtually by videoconference.

    If you are committed to moving to a remote audit, talk with your auditor about how the firm’s technology resources will interface with your system. A good practice is to include questions about the audit firm’s technology capabilities in your Request for Proposal if you are seeking a new audit provider.

  • Technology and resources

    Remote audits are supported by a wide array of technology, including email and software programs such as Word, Excel and Acrobat. On the more complex end are testing and audit software, videoconferencing with screen share capability, and secure portals through which you may upload documentation and notes to the auditors, as well as receive documents from the auditors that need review or signatures.

    Shifting to a remote audit may require you to employ some tools and resources that you have not used before, including secure digital signatures and internal technology tools that enhance your ability to exchange and store files securely. These are resources you can add relatively easily with guidance from your IT department or an outsourced IT consultant.

    In the event inventory must be counted, the standards provide tips for what an auditor can do. “There are also cutting-edge ways to meet the standards,” Anderson said. “Some firms use drones, and I actually encourage firms to use Google Earth when there is large inventory like construction equipment stored outside.”

    But a successful remote audit involves more than just the embrace of new technologies. It requires effective communication.

  • Communication

    Effective communication doesn’t just happen on its own when all the players involved in an audit are in different locations. A communication plan should be put in place before the audit begins that spells out frequency of routine communications, as well as protocols for exchanging documents and getting the auditors’ questions answered in a timely manner.

    The goal of the communication plan is to keep the audit moving and make it as efficient as possible, and it should be tailored to your needs. Perhaps you want the auditors to email you as needed with questions so you can provide answers right away; or maybe you prefer to set aside an hour a day to answer all their questions at once, so a daily email with all questions aggregated or a video conference would be better for you. Discuss this up front with the audit team.

    A good communication plan will include contact information including email addresses, office phones and cell phone numbers for you and key members of your team, as well as members of the audit team. Additionally, it will include a schedule of regular phone calls, such as once a week or every Tuesday and Friday, for a progress report. Finally, the communication plan should include a schedule for one or two videoconference calls to discuss findings and recommendations.

    Of course, the audit engagement principal and all members of the audit firm staff should be available to respond to your emails and phone calls as needed, an understanding that should be stated in the communication plan.

Should I Move to a Remote Audit?

One of the factors driving the move toward more remote auditing is the desire to make things as easy as possible for the audit client. Even post COVID-19, remote audits will be needed as many organizations enable staff to work flexible schedules, including working from home one or more days of the week. And some companies are downsizing their space amid increasing real estate costs, sacrificing conference rooms that formerly housed onsite audit staff. Such trends will continue to grow in popularity after work from home experiences prove successful during the coronavirus pandemic.

Moreover, as business leaders are becoming comfortable with more and more key business functions moving to the cloud, remote audits fit in with an evolving workstyle in many companies. Yours may be one of them.

Ensuring that all stakeholders within your organization are on board with the move to a remote financial audit is a good idea. Cultural issues matter, and the human touch is an important part of any relationship. If your organization needs in-person face time with your audit team lead during the audit process, make sure the audit firm knows this. Talk to them about scheduling other meetings during the year outside of the audit process to discuss broader business issues. This can help you develop a more meaningful relationship that yields actionable insights for your business.

“For years there has been no reason traditional field work cannot be completed before your auditors come on site,” said Anderson. “Doing so provides for a more efficient wrap-up in-person, or via video if preferred, with more meaningful conversations with audit managers or principals and that’s the best-case scenario for all involved.”

To learn more about remote auditing, contact our Audit & Attestation team.