Question

Please discuss:

What are some of the challenges the audit profession is facing today?

Answer 1

The major challenges confronting auditors in the current environment are:

• Lack of transparency - In the US, due to the absence of rotation of external auditors, it is not unusual to see auditors collude with their clients. This was the reason Arthur Andersen failed as an audit firm; due to the lack of public oversight and accountability in the case of Enron.
• Evolving data analytics - Data analytics promises to change the audit completely. The book-keeping skills of auditors will soon be rendered redundant, and it needs to be replaced by high-level analytical skills. Many clients are adopting new technologies to create, store and process their data, and how auditors adapt to the new control environment will be a major precursor toward the direction the auditing industry takes. The skill-set of auditors also need to evolve quicker than it currently is.
• Constantly shifting regulatory environment - After the financial crisis of 2008, regulators have clamped down, especially on the big players in the financial services industry. Recently, the US Administration has repealed some of those rules and relaxed a few requirements for banks and broker-dealers. Auditors need to stay on top of every such movement and ensure that their clients' calculations and disclosures reflect the most recent accounting and regulatory pronouncements.
• Reputation Risk - The case of Arthur Andersen in the US, PwC in India, are just some examples of the reputation risk faced by the bigger auditing firms. The scrutiny and public humiliation they face from the financial world is sometimes enough to wipe them out. Audit firms need to know how to direct their course in a constantly changing risk environment.