The future of audit lies at a point where assurance and advisory services converge, according to CPA.com president and CEO Erik Asgeirsson -- with technology driving the two together.

“It’s all about assurance and advisory,” Asgeirsson told attendees at the Digital CPA Conference in Washington, D.C., last week. “It’s about delivering trust plus insights.”

In his keynote, Asgeirsson described a new audit model that leverages the cloud to use automation, artificial intelligence and even blockchain to improve the audit and deliver more value to clients and markets.

“An AI-driven audit is going to provide greater assurance around the integrity of data,” he continued. “It’s going to provide great value to the capital markets.”

The cloud, and the ability to share information instantly and accurately that it provides, is fundamental to much of this change. “You couldn’t have cloud auditing until you had cloud accounting,” he noted, and reminded attendees, ”We’re only in the third inning in the cloud accounting transformation.”

More power for accountants

In many ways, the technology has only just begun to enable the kind of convergence Asgeirsson described.

“We’ve just reached the point where the technology is allowing us to fully realize the CAS vision,” said Aaron Harris, senior vice president and head of engineering and technology at Sage Intacct, who joined Asgeirrson on stage at the conference. “CFOs and accountants have been held back by periodic repetitive tasks. All of that is not giving them enough time to work on what we got into the profession for in the first place – helping organizations to thrive.”

What’s more, there’s now an unprecedented amount of raw horsepower being applied to handling basic tasks and freeing up accountants and finance professionals. “The idea of unlimited computing power is driving a lot of what we’re doing in technology,” he continued. “Of the 10,000 CPUs we have running, only about 30 percent are devoted to humans – the rest are dedicated to automation.”

All of that has allowed technology to develop systems that do more than just handle the basics. “The last generation of finance products was about making sure you had enough information to work on,” Harris said. “Now we want systems to optimize performance – to find the answers you need. The future is about what you do in situations where you don’t know what questions to ask. That will give us the opportunity to look to the future, to identify risks and opportunities, and to help leadership prepare for those.”

These kinds of technology-enabled solutions will offer firms the ability to move many of their services up the value chain.

“Audit can become a strategic value-add for organizations, whereas today it’s mostly viewed as something I have to do for compliance,” Harris concluded. “The $40 billion the Big Four make on audits will become $100 billion in added-value audits.”

The AI-driven audit

Focusing on audits, Asgeirsson described a new model where data flows automatically through the cloud into an advanced platform for an AI- and data-driven audit.

To create that platform, the American Institute of CPAs has raised money from the top tier of accounting firms and partnered with audit software developer CaseWare to build a Dynamic Audit Solution.

The DAS will take advantage of enhanced data flows, the use of artificial intelligence to make predictions, and improved methods for continuous auditing to make audits more efficient, and more valuable to clients.

“We don’t want to automate the audit to the point where people aren’t involved,” said Karen deSouza, head of product at CaseWare, who joined Asgeirsson during his keynote. “We want AI to point out risks and help.”

With the vast amounts of data currently available, AI systems can learn to identify data and how it’s usually classified.

“We’re looking at using AI to tag client information as it flows into the audit system – that will save a lot of time and improve quality,” said deSouza, “but risk is where AI can really deliver value – learning from all transactions where the risk lies.”

By tagging data appropriately, recognizing patterns in data and comparing them to millions of previous situations, smart audit systems should be able autopopulate engagement documentation and identify areas of risk for human auditors to concentrate on.

“The AI-driven audit should improve audit efficiency and improve the quality and the value we bring back to the client,” said deSouza.

For accountants who embrace these technologies and focus on bringing them to their niches, there are tremendous opportunities, Asgeirsson told conference attendees.

“It’s never been more important to specialize and to deliver insights, value and trust,” he said.

From audits to firm structure, accountants need to start disrupting most aspects of their profession, or they risk being left behind, according to American Institute of CPAs president and CEO Barry Melancon.

In a keynote address on the state of the accounting profession at last week’s Digital CPA conference in Washington, D.C., Melancon told attendees, “Just because we are where we are and we’ve earned a great position, we can’t stop. You can’t hit the pause button.”

“Being in a great position doesn’t mean we get to be here forever,” he continued. “Even with audit, even though it’s written into all state laws that only CPAs can perform them – that doesn’t have to be forever.

Melancon cited the example of Sears – a company that was both highly innovative (it pioneered mail-order, for instance, and more recently helped create an early Internet service, Prodidy) and a cornerstone of the economy – that failed to keep up the pace.

“They were on the leading edge, but for some reason, in the span of a moment, they missed, they stopped – and they paid the ultimate business price,” he said.

To underscore his point, Melancon noted that since 2000, 41 percent of consumer-centric companies in the S&P 500 have been acquired or gone out of business – while over the same period, 39 percent of members of the AICPA’s Major Firms Group were either merged or acquired out of existence.

Given the pace of change in technology and the broader economy, he explained, it is incumbent on the profession to take up the hard work of disrupting itself based on the profession’s premiere asset: trust.

“We have an incredibly important role in providing trust – we as a society don’t trust anything. We don’t trust our government to a large degree, we don’t trust our media, we don’t trust big companies, we don’t trust religious leaders, we don’t trust the Internet,” he explained. “Accountants have the highest trust factor – right now, today, in today’s fast-paced world, we have earned and enjoy trust we can build on to help the world and to help our clients sort things out. That’s our opportunity – but that means we have to take some risks.”

Risks and opportunities

The profession has already begun exploring new areas, particularly in audit, Melancon noted, and those explorations are themselves pointing to further opportunities.

“Today, tens of thousands of SOC reports are being issued, and we’re looking at building out from that experience to create new services – on smart contracts, for instance, or blockchain,” he said. “So when someone says, ‘My blockchain service does x,’ people will want attestation that it really does.”

To go further, though, will require the profession to create and embrace change.

“When we look at our core services, like auditing – do we have the guts to disrupt those? I think we do,” he said, citing the OnPoint PCR tool created by the AICPA and CPA.com, which puts artificial intelligence and cutting-edge technology at the disposal of smaller firms.

The AICPA has also raised $45 million from the top 80 firms below the Big Four to create a Dynamic Audit Solution aimed at applying the technologies of the future to this core service of the profession. “We went to the next 80 firms and said, ‘Do you want to do something in a new way? And look at it in a big new way?’” Melancon explained.

Audit and beyond

While building its own tech will help the profession manage its own disruption, that isn’t all it will have to do, Melancon warned.

“Reimagining the audit is going to require us to rethink our competencies. We’re going to have to have a thick skin and commit to this change,” he said. “You don’t get permission to evolve what an audit is if you’re not delivering right now – so we’ve had a focus on improving audit quality for the next five years. We have to have that quality to experiment going forward.”

That quality, tied to the profession’s trusted advisor status, should open plenty of doors in the future. “We believe regulators and the consuming public will come to require third-party attestation on whether companies are doing the right thing in cybersecurity,” Melancon offered as an example. “Don’t we as a profession have an obligation to think about how we attest to a broad range of things – what about sustainability, integrated reporting and so on?”

10 years down the road

Looking beyond the near-term, Melancon extrapolated on current trends, like the fact that among the Top 100 Firms (excluding the Big Four), only about 20 percent of service personnel are CPAs.

“How do we actually define ‘CPA?’” he asked, positing a world where changing client needs and demographics lead more and more firms to hire non-CPAs, leading to firms that are CPA-led, as opposed to having CPAs all through the staff.

He also envisioned major changes in the core skill sets of the profession. “In a decade, there won’t be a need for us to have deep learning of an accounting standard,” he said. “We’ll have bots for that. We’ll need higher-level skills.”

Perhaps most important, he thinks accountants will need to be ready to radically reimagine the field.

“In the early days of the profession, tax wasn’t part of our work. It was only after the income tax amendment that we saw the opportunity to bring it in as a core part of our profession. Audit wasn’t either, but in the 1930s, we took that in as a core part of our profession,” he explained. “Our challenge is to see the new opportunities, and to take those on. If we don’t do that, we aren’t guaranteed our space. But if we take them on, our opportunities are endless.”

The top technologies for tax and accounting professionals were honored on Tuesday at the Los Angeles Convention Center. The 15th annual Technology Innovation Awards were presented by CPA Practice Advisor during a special ceremony at the Accounting & Business Show - LA. The event, held July 25-26, gathered more than 2,000 financial professionals from across the country for accounting and tax education topics and keynote speakers.

The 2018 Innovation Award winners are:

• ADP for Accountant Connect
• Bill.com, for the new Bill.com customer experience
• CPA.com and CaseWare, for their collaboration: OnPoint PCR
• Liscio, by Liscio
• Receipt Bank, for Receipt Bank Self Employed

Five Innovation Award Finalists were also recognized by CPA Practice Advisor:

• Avalara for Avalara Trustfile
• BQE Software for BQE Core
• Gusto for its new Flexible Pay
• Intuit, for Intuit ProConnect Tax Online Data Import
• SurePrep for Tax Caddy

The Tax & Accounting Technology Innovation Awards honor new technologies that help accounting firms and their small business clients operate more efficiently and profitably through improved workflow, increased accessibility, or enhanced collaboration.

“These awards recognize new technologies that can benefit tax and accounting professionals, and their clients” said CPA Practice Advisor Editor-in-Chief Gail Perry, CPA. “As the profession continues to embrace new workflows and processes that optimize the potentials of these technologies, firms are improving their efficiency and focusing their practices on more profitable service offerings that, at the same time, are more beneficial to the small businesses that rely on them for advice and strategy." Perry also manages a tax practice and is the author of more than 30 books, including Mint.com for Dummies, and Idiot's Guide to Introductory Accounting.

CPA Practice Advisor provides a variety of independent digital and print resources for accounting professionals, including practice resources, technology reviews, interactive tools and content that helps firms achieve greater productivity.

In addition to the winners and finalists, more than 40 technology products and services were nominated for this year's Innovation Awards.

Learn more about the Innovation Award winners and finalists in the August issue of CPA Practice Advisor.

Audited financial statements are a key underpinning of our financial markets. But are they still relevant in a digital world in which reams of information can be synthesized and analyzed for insight?

Analysts, advisors, portfolio managers and others who evaluate companies’ financial conditions for a living think so. A survey last year by the Center for Audit Quality found that, when it comes to public companies, nearly eight out of 10 retail investors say they are confident in audited financial information when they make investing decisions.

Management and company board members feel much the same way. A 2017 Deloitte survey found that almost eight out of 10 C-suite executives agree that audited financial statements “reveal things that their companies could be doing differently or better.” The percentage is even higher (91 percent) for board members who sit on the audit committee.

The process of auditing financial statements is also increasingly leveraging enhanced access to data and analytical capabilities to the benefit of clients. Deloitte found that audit insights – from the effectiveness of a company’s business processes to spending patterns and potential improvements in operations – often translate into higher growth for companies. Companies that routinely acted on audit insights were 47 percent more likely to achieve what their leaders considered “great” growth in the past three to five years, the survey found.

It’s clear business decision-makers, analysts and investors continue to see value in audited financial statements, as well as in other CPA engagements such as compilation and review. But another key component of relevancy is keeping pace with how information is exchanged in a digital world. In today’s environment, information that isn’t easily obtainable is less valuable and less actionable, no matter what insights it may hold.

In many ways, the availability of digital financial statements has been a tale of two cities. On the public company side, the SEC’s EDGAR platform has long offered a central hub for financial statements and other information in digital format, and there are other online databases with complementary information. Yet fewer companies, particularly small ones, are going public. The Wall Street Journal noted this trend last year with an illuminating statistic: in 1996, there were 557 initial public offerings that raised less than $50 million; in 2016, there were only 18 IPOs of similar size.

On the private company side, information is far less accessible and centralized than public company data, but some strides have been made. We developed with Confirmation.com an online clearinghouse for private financial information that creates a secure, flexible exchange for audited financial statements and other CPA- provided documents. The RIVIO Clearinghouse platform ensures that lenders, investors and other authorized recipients can get an unaltered audit report prepared by a legitimate CPA firm, reducing the risk of fraud, misrepresentation or error. And across the profession, other digital innovations are under development to ensure that the audit can deliver more valuable insights.

Business is moving to digital processes and eliminating pain points from paper transactions at a rapid pace. But the shift to digital isn’t just about removing bottlenecks – it’s about expanding the capabilities we can bring to analyzing and presenting data. In that way, the shift to digital is helping to ensure the relevancy of financial statements now and into the future.

The potential for a tremendously successful future lies within the grasp of the accounting profession, according to American Institute of CPAs president and CEO Barry Melancon — provided accountants are willing to imagine that future and start reaching out for it.

“The opportunities for the profession are immense, but so are the changes we’re facing,” he said in a co-keynote with institute chair Eric Hansen at the AICPA’s annual Engage event, held last week in Las Vegas. “If we are willing to go beyond, to push on beyond the perceptions of what we do, we can create a profession that’s aligned with where the world is headed.”

Driving the need to reimagine the profession are the multitude of changes — technological, demographic, social, political and more — that are reshaping the markets and economies that accountants operate in. These changes run the gamut from threatening to very positive — but they all require that accountants proactively engage with them.

“The strategy is not to stand still,” said Hansen, who is also COO of Top 100 Firm BKD, and was installed at Engage as chair of the Association of International Certified Professional Accountants.

“We’ve changed significantly in just the past year,” said Melancon. “We’re never going to see a pace of change that’s slower than what we’re seeing now. And we know we won’t be obsolete, particularly if we embrace these changes.”

AICPA CEO and president Barry Melancon during his keynote at the 2018 Engage event
Courtsey: AICPA

Part of the new imagining of the profession will have to involve a closer relationship with technology, and the willingness to change to make the most of it.

To start, accountants will need to embrace technology more quickly and comprehensively in their own practices. “Only 68 percent of firms are using the cloud in some way,” said Melancon, by way of example. “That’s a pretty small percentage, when you think the cloud has been with us for a decade.”

On another front, they’ll need to able to see themselves in roles and using tools they might never have imagined before. “People think of robotics as mostly being about manufacturing — but it’s affecting services, as well,” he said. “One of the Big Four is now the leading users of bots in the world.”

Similarly, they’ll need to explore new areas with an eye for what they can bring to the situation. “Thirty-six percent of organizations have experimented with blockchain, while 67 percent don’t have the talent to use it,” he said. “What is the role of the profession here?”

While calling for proactive change, Melancon offered some comfort for those who fear technology will require accountants to become coders. “The profession shouldn’t be made of experts in the mechanics of blockchain. But we do need to understand how it works,” he said. “We are the profession that brings trust to things.”

One of the areas where Melancon and Hansen see a significant need for — and upside to — the willingness to fundamentally reshape things within the profession is in audit, where the AICPA has been conducting research, improving quality, building new tools, and working with thought leaders and top audit firms to create a new vision of what this core service can be. (See “CPA.com and CaseWare debut client engagement software.")

“We are not talking about looking at the existing audit and making it better — incremental change,” warned Melancon. “Instead, how do we imagine what the audit should look like in a world that’s changing the way ours is? This is really about the profession coming together to transform one of its key services.”

“Transforming the audit is not about automating what we’re already doing,” added Hansen. “We need to set that aside — if we’re intentional about advancing this, we can create a very successful future for our profession.”

New takes on old roles

The audit isn’t the only core service area that can be reimagined — tax is ripe for a rethink as well.

“With social media and access to info on the internet, a lot of our clients are getting misled on tax issues — our professionals are spending a disproportionate amount of time dealing with misinformation,” said Hansen. “We’re trying to stimulate interest in, and excitement about, the changes that are happening in the tax area. This is an area that’s evolving rapidly, away from compliance toward a holistic suite of services and skills.”

Bringing financial planning, estate planning and other long-term client services into the tax conversation will help move the area from backward-looking compliance to forward-looking high-value service — and serve clients far better.

“I don’t think of tax on its own, I think of it as one aspect of my whole life,” said Melancon. “For firms that are focused on relatively simple tax returns, the tax act is going to have a major impact. We’re on a path where more and more people won’t file a tax return at all.”

And as that compliance work dries up, accountants will want to envision offering newer clients deeper relationships and richer services. “Tax planning and financial planning are going to be a major concern for millennials and younger generations,” said Melancon.

Accountants in industry will also need to reimagine their roles and what they offer their internal clients. “Where the role of finance departments used to be mostly crunching numbers, really the most valuable part of their work is taking the information and telling a story that helps business decision-makers move the business forward,” said Hansen. “This is much higher-value and more rewarding work.”

AICPA chair Eric Hansen during his keynote at the 2018 Engage event
Courtsey: AICPA

The reimagining of the profession isn’t just about service lines — it will also include changes in skill sets, education, and how CPAs and accountants view themselves.

Citing a study that said that by 2030, 375 million people will need to switch occupations and learn new skills, Hansen called for CPAs to reimagine how they’ll continue learning: “When it comes to professional education, if you’re measuring hours, you’re missing the boat. You need the skills and the knowledge you need to serve clients better.”

Noting that there has been a 20 percent decline in the hiring of accounting graduates by major accounting firms over the past two years, even as total hiring levels remain the same, Melancon suggested that what accountants learn how to do and how they present and think of themselves will have to change. “As we look at the profession over the next two decades, our skill set has to shift from being just the GAAP and GAAS and tax experts,” he said.

“Do we need to create an alternative pathway to CPA?” he asked. “Maybe it’s not essential that a future CPA candidate demonstrate knowledge of how to do a compilation. As we develop new services around, say, blockchain, don’t we need a different set of skills, combined with a baseline knowledge of accounting? Maybe future candidates will take different parts of the exam based on the pathway they took to becoming a CPA.”

“Many of you were required to write out the short-form audit report as part of your CPA Exam,” Melancon recalled. “How silly was that? It was part of our bias about what the exam was about. Our ability to get past some of those biases is going to be key.”

The biggest picture

For all the opportunity available, realizing a new future won’t be simple or painless, and will require hard work.

“As we look 10 years out, our profession is going to look very different both in our companies and our firms,” said Hansen. “There is no ‘Easy’ button here.”

“Thank you for imagining a new profession — I encourage you to go home and continue doing that,” Melancon said, in closing. “The opportunity for us to reimagine ourselves is truly limitless, but only if we are bold enough to change, bold enough to move forward.”