A look into the Future of Auditing
My name is Alexander Rühle, and I am the founder and CEO of zapliance. My team at zapliance consists of auditors, scientists, and developers – and it is our passion for auditing that unites us. That’s why there is one thing that has been on my mind for a while now: The situation many audit functions, if not the entire audit industry faces, is a worrying one.
Even if this seems the harsh verdict is only a matter of my personal opinion, there is a growing number of indicators stressing that we auditors are not up to the task of changing with the times if we continue to stick with our current mindset.
To state the problem in auditors’ terms:
Statement: In today’s changing society, the competencies in many audit functions are not appropriate for creating sound added value for the companies in which we operate. In particular, the methodological, personal, and social skills are not up to the task.
Risk: There is a risk that audit functions will neither succeed in adapting their competencies to the challenges of digital transformation nor contribute to the digital transformation of their companies.
Recommendation: Read the following article, then take an unsparing look in the mirror: How do you assess the status quo of your competencies? In the next step, you should analyze the changing (corporate) world. Take discrepancies as opportunities – and tackle them immediately after prioritization.
How did this finding come about?
As a start-up company that has now been active for five years, we not only work in an area where auditing, science, and development intersect. We are also surrounded by other start-ups that operate in less “conservative” B2B industries or even in a B2C environment. It’s these different influences that our company benefits from regularly. But all these new impulses also made me realize that a lot has changed over the last years.
I don’t just mean the obvious things –namely, a new, bigger office and a larger team. Our way of working has also evolved: In the early years of zapliance, our team was still strongly influenced by our own auditing experience and a predominantly “auditing mindset.” Today, the way we work together has changed. When you enter our office, you almost always hear people talking to each other. And there is a simple reason: we listen to our customers, as well as to our colleagues. And we discuss things more – focusing less on problems and challenges but more on solutions.
One question keeps arising: Is the way we audit today sustainable?
And there is a straightforward reason for this question: We live in a world in which more and more data is available. Let me give you an example: Last week, I was on my way to Berlin, and the navigation system of my car told me that I had driven that same route 257 days ago. It also said to me that it had taken me exactly 167 minutes to complete. The omnipresence of data not only changes my behavior but also my expectations towards other companies. Because the reality is: the companies we work with no longer collect data on their internal processes, but also about their customers. At least we hope that they do.
The mere possibility to collect and evaluate data changes everything. One example is the specialist departments we work with. They are increasingly using “self-service dashboards” – dashboards that can be configured individually at the push of a button. This kind of software has many advantages for specialist departments. But it presents us, the auditors, with several challenges.
A lot has changed – but how should auditors react?
The expectations of those audited have changed: The demands relating to the depth and quality of audit results are increasing – anyone can now perform simple analyses. This fact will put us, the auditors, under pressure. And the question arises as to how we can continue to generate sound added value for the specialist department in this situation.
To answer this question, it is worth looking at the term that underlies our professional title: “audire.” The word comes from Latin and means understanding or listening. I believe this precisely is what we auditors should focus on. We must ask ourselves how the needs of our stakeholders are changing in a data-driven world.
Analyzing data means understanding.
Any auditor who does not analyze the existing data will no longer be on a par with the audited company. Analyzing data should be a fundamental part of every audit to better understand the facts. Of course, data analysis should not be the only methodology. However, there should be excellent reasons not to consider data analyses in the run-up to an audit. Because it’s when we have a good understanding of things, we can play our most valuable card:
We combine the knowledge of the audit environment with our knowledge of the organization and our unique perspective on risk.
But is that enough? Is our knowledge of the organization and our perspective on risk enough to fully understand the data situation in an ever-faster changing world on our own? I do not think so.
Given the depth and complexity of data today, can we still independently arrive at sustainable and feasible recommendations for action if we no longer understand the world of data and processes on our own? Definitely not.
Auditors need partners.
When identifying risks and opportunities, auditors only ever act from one perspective – one of many. That means auditors depend on the support of partners within the organization for a holistic and valid view of the angle on risk/opportunity. But how should auditors find these partners? And even more importantly: What role does the interpersonal side of things play in building these relationships? I am particularly concerned with the question of how we auditors are perceived by others in the company. Do they want to work out solutions with us? Do we appear to be open-minded? And how beneficial are suits and ties in this respect?
Let me tell you a little anecdote about our team’s visit to the 2019 DIIR Congress in Dresden: We came there to broaden our network within the auditing community. But there was one thing we were particularly looking forward to: listening to others. But what surprised us the most was that the participants were not only conspicuously reserved towards us but also towards each other. While we had expected an open mindset, it was our impression that among the participants, there was much skepticism about new people and ideas.
How do you perceive the atmosphere at these conferences? Is your impression similar?
After this experience, I asked myself the following questions: How are auditors with a mindset like this going to be able to succeed in working together with specialist departments? And how will auditors react to the challenges of the future if they respond to new ideas so close-mindedly? I am convinced that we need a transformation of the audit profession. For this to happen, there needs to be a transformation of data analysis and a transformation of the auditor’s competencies.
But what will this transformation look like?
At zapliance, we have automated the data analysis for professional auditors so that even large amounts of data can be analyzed at the push of a button. But we have realized that this is not enough! Without the appreciative cooperation with specialist departments, it won’t be easy to generate sustainable added value. The auditor will only succeed in doing this if there is a change in her or his mindset: Auditors need to question and further develop their competencies.
These competencies include social skills like communication skills, which play a crucial part while interacting with others. But competence in interpersonal relations, professional expertise, and methodological competence also form part of the individual skillset of an auditor (see, among others, Mudra 2004).
The crux to the success of auditors in the future: their competencies!
We do not only believe that a transformation of the audit profession is necessary, but we are also convinced that the transformation of the audit profession will play a significant role in bringing this about. That’s why we have decided to launch a series of blog articles on this topic. In these articles, we highlight the four areas of competence in the context of auditing and encourage auditors to rethink their approach to be even more successful in the future. Communication is one example: it can quickly become a sensitive matter to ask specialist departments for assistance – especially if they feel controlled or have the impression that someone is not satisfied with their work. Communication on a level playing field is required here to prevent such conflicts.
That does not mean that the debate about the future of auditing should only revolve around open communication. It does mean, however, that we should recognize the importance of individual competencies. It’s the only way we can survive as auditors in the future.
I’m looking forward to having an exciting discussion about the issues raised in this article with you in the comment section below.
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Mudra, P. (2004). Personalentwicklung: Integrative Gestaltung betrieblicher Lern- und Veränderungsprozesse. München: Verlag Vahlen.