Remote audit is here to stay – but what are the rules?
September 17, 2021
Many audits went ‘virtual’ in 2020, either partially or wholly, accelerating a process that’s been underway for a decade or more. What are the rules, and what is best practice, as they currently stand? And where might they be going in years to come?
Traditionally, audits have relied on the evidence of the auditor’s own senses and have valued physical evidence wherever possible. That has meant auditors on site with clients, reviewing paper records, and getting close enough to touch high-value assets.
With business increasingly being done online, and intangible assets such as software or development costs becoming more common, that has begun to feel, to some, a little anachronistic.
With the rise of secure document transfer protocols, and the drive for end-to-end digital record-keeping through programmes such as Making Tax Digital, digitalisation was already underway.
In 2019, even before the COVID-19 pandemic, there was much excitement around the idea of using drones to conduct stock audits in hard-to-reach locations, such as coal fields.
With climate change on the agenda, too, the idea of sending audit teams out on planes, trains and automobiles by default came under scrutiny. Could this be a way for the audit industry to play its part in reducing carbon emissions?
Then came lockdown, affecting different territories to different degrees at different times. The audit industry was forced to embrace new ways of working overnight – and find ways to ensure the quality and robustness of virtual audits.
As happened across many sectors, auditors and their clients pedalled a little harder to make it work, but there were clear downsides.
The problems of remote audit
In practical terms, the challenges are around obtaining sufficient evidence, and appropriate evidence, as the basis of an audit opinion. Auditors have developed new ways of obtaining audit evidence such as attending stock observations virtually through the use of video facilities. Assessing the reliability of audit evidence is important as limitations in the availability of audit evidence may need to be stated in the audit report.
Less tangibly, and anecdotally, auditors value opportunities for informal, ad-hoc conversation at client premises. Entirely remote audits deny them opportunities to see those client businesses or organisations in operation and to ask questions as and when they arise. This is not only important in reducing audit risk but also because it allows auditors to deliver a better service.
Finally, there are concerns around the reliability of evidence presented digitally. It may sound like science fiction but we already see deepfake technology being used to spoof voices and likenesses in audio and video, in close to real time. Less sophisticated deception might involve relatively simple digital manipulation of documents by, for example, copying signatures from one to another.
International audit standards
In 2020, the International Auditing and Assurance Standards Board (IAASB), which oversees audit standards worldwide, issued a series of policy statements in response to COVID-19.
Those touched on remote audit only in passing, and only then to underline the importance of adhering to existing principles. And, indeed, on the need to double down on professional scrutiny and scepticism.
Audit standards tend to evolve slowly, over the course of years – and rightly so. Nonetheless, that means we are not likely to see any sweeping policy judgements further encouraging remote audit anytime soon.
A hybrid approach?
As staff return to offices and workplaces, what we’re likely to see is a return to in-person auditing, with some remote audit practices retained as part of the mix.
Where auditors feel confident in providing an opinion based on digital-only evidence, or evidence received by correspondence, they may continue to use it.
That will reduce travel time, reduce the potential burden on clients, while retaining the physical presence of auditors for instances where it can really add the most value.
Contact your local Kreston firm for more information or to talk about how modern audit procedures might work for you. Or contact us at Kreston Global via kreston.com