The South African Institute of Chartered Accountants (SAICA) recently commissioned a survey that seeks to forecast the future of the accountancy profession and the socioeconomic and technological dynamics that will affect both auditors and financial managers.
Unsurprisingly, technology, society's relationship with business and the push towards integrated thinking are some of the trends that could make accountants either extinct or extremely important to maintain order in the world.
Technology, says Martin Butler, is like a knife. Either you use it in the kitchen to prepare food, or it is a murder weapon. It is up to us to decide whether we use it to slice bread or arteries.
For the audit profession, this analogy couldn't be more applicable.
According to the Saica survey done by the Institute for Futures Research at Stellenbosch University, as much as it is an enabler, technology holds a number of threats to the profession and society that should not be disregarded.
The most-publicised of these threats is arguably the vulnerability of certain types of employment to automation. Particularly noticeable is the revelation that apparently 98% of the current tasks of audit clerks will soon be automated.
This made me think back to my red and green pen days of auditing. Auditors traditionally relied on sampling as a methodology to obtain assurance on whether or not numbers are "fairly presented". This involved randomly selecting a predetermined number of transactions and testing whether management followed all due processes and whether the relevant supporting documentation existed.
If you, as an auditor, picked up anything that was incorrect in your sample, you would then extrapolate such a sample to the entire population, being the account you are auditing, and establish the possible misstatement there may be in the account.
This is why audit opinions never say "we think these financial statements are accurate". Instead, auditors say "in our opinion, the financial statements present fairly, in all material respects, the financial position of the company".
But in an interconnected world, technologies such as blockchain, robotics and artificial intelligence will soon cross-check every single line of every single transaction in a company for validation, accuracy and completeness. We will soon be able to audit every transaction as and when it happens, and no-one has to wait for the dreaded year-end for the scary auditors to move in. In fact, chances are that the profession will become even more sophisticated as the manual tasks will be done by technology and the thinking tasks by adequately qualified and ethical humans.
I cannot wait for such a time, as it will probably be our best opportunity to bridge the expectation gap of what users of financial statements expect of auditors and what auditors actually do.
Society expects auditors to pick up all fraud and any impropriety in an organisation. Auditors only expect to pick what they call "material" misstatement, and even that is often based on what management tells auditors - which is probably the biggest blind spot of the accounting profession.
Why is it that every time we hear of a big accounting scandal or financial fraud, the finger is always pointed at the auditors? The people who come in once a year to check if the financials are "fairly presented". They are not the only chartered accountants in the room.
There are people who are employed full-time to ensure the financials are accurate. In fact, often there is a chartered accountant leading the fraud in the first place — mostly as CEO or CFO of the company. Look at Steinhoff — the CEO and the CFO were chartered accountants. Look at VBS — the chairman and the CEO were chartered accountants. Yet we, as society, point fingers at KPMG and Deloitte, the respective auditors of the two companies, and expect them to have kept management honest.
The Institute for Futures Research summarises its research report by noting that "the longer Saica members retain a 'business-as-usual' approach, the higher the risk of irrelevance could become". Though the profession must absolutely keep auditors accountable, it needs to up the ante on all its members.
This article first appeared in The Business Times, Sunday Times on Sunday, 17 February 2019.
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