Embrace fluidity and remove the risks of remote audits
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Embrace fluidity and remove the risks of remote audits

1 month ago · 4 min read · AICPA Insights Blog

Advancements in technology and digitization have expedited and eased the audit process. Auditors and clients separated by geography can now connect online and remove long hours spent rummaging through file boxes on premises.

Remote audits offer flexibility, but they also carry risks. A hybrid approach to audits can possibly help mitigate those risks.

“Historically, we would be at the client’s site,” said Sara Lord, CPA, chief auditor at RSM US in Minneapolis. But now, “I don’t need to be sitting in your office to be analyzing your data. I can be sitting in my office and doing that.”

In-person meetings and inventory tours, however, are still needed. Operating in hybrid environments — parts of the audit are on-site and others off-site — provides the best of both worlds for the auditor and client.

“The landscape has changed immensely, just like every other aspect of society as we have become more digitally enabled,” said Lord, who is also the chair of the AICPA’s Auditing Standards Board.

But hybrid environments are not risk-free, and remote audits present some challenges. Auditors should stay alert to ensure their audits remain high quality.

Concerns over security breaches

A remote audit is powered by technology — videoconferencing software, security software, electronic statements, PDFs and other digital conveniences. But with these amenities come possible concerns over security breaches or document legitimacy.

“You don’t know if you’re seeing an original document or not,” said Barbara Lewis, CPA, CMGA, principal at CliftonLarsonAllen in Albuquerque, NM. “PDFs can certainly be edited. People have sent us bank statements and you can go in and edit those bank statements.”

In a workaround, auditors could work with banks to receive PDFs directly. That would keep the audit remote, but the documents would come from an independent party.

It takes a bit more diligence and awareness to ensure digital signatures, invoices and other documentation are authentic. Auditors must speak up if anything looks unusual.

Also, auditors aren’t the only ones who have started working remotely — clients probably have, too, and remote working may have ushered in additional changes. All of that should be considered.

“Did the client change how they were doing things that would have an impact on the audit and is there more risk because of that?” asked Lewis. “Did they forgo having two signatures on a check or forgo having someone review the journal entries?”

As auditors work with clients, they should be cognizant of whether a change in a client’s processes will affect the audit and ensure audit documentation captures the updated processes.

Relationships and communication build strong audits

Strong relationships and communication are integral parts of any audit. Switching to a remote process, said Lewis, made it incredibly hard for her to nurture those relationships with clients. “Yes, we have things like [Microsoft] Teams and Zoom, but it’s just not the same as having that one-on-one personal connection.”

In this relationship-driven business, Lewis added, when those bonds can’t be cultivated deeply, an auditor is at risk of losing trust.

“Being 100% remote, you do lose some of the ability that you have to focus on your professional skepticism,” added Lord. Auditors can miss conversations and the ability to see firsthand how the client operates. They also may not get the full picture of company culture or “tone at the top.”

“You get a lot of that by being there,” Lord said. In-person meetings are an incubator for small talk and learning more about clients’ hobbies, families and beyond. “You have to be really intentional in a remote environment.”

In an environment that’s solely reliant on video calls, a major obstacle for auditors is being unable to read body language and verbal tone or fluctuation, said both Lewis and Lord. To mitigate this challenge, develop a keen eye and maybe bring in a second person on the call to watch for any red flags.

A prolonged and inefficient timeline

While remote auditing is considered convenient, it can lack the timeliness and efficiency of an in-person audit.

Distractions, according to Lewis, are more common in a remote environment. Children or pets swing by your desk to see what you’re up to. You may get distracted by a more pressing deadline or a household chore.

If you’re right in the middle of a task, those distractions can interrupt your entire process. “Do you miss something because you get distracted in the middle of what you were doing?” said Lord, adding that it’s all too easy to miss part of a control or a process.

Lewis noticed a major shift in efficiency, especially on the client’s end. When an auditor is not physically present, she said, incentives for the client to get all necessary documents are diminished. “It seems like it’s taking a little bit longer to actually complete an audit from start to finish because when you’re trying to do it remotely, the client is not giving you the attention you need. It does slow the process down.”

She said that she’s noticed an “out-of-sight, out-of-mind” mentality from clients. It can be all too easy to get distracted and put off a deadline until the last moment. Auditors should be aware of this and work with a client to ensure the audit is performed in a timely manner.

A fluid hybrid environment

Hybrid audits are here to stay, agreed both Lord and Lewis. Much of the work can be done off-site and auditors can “purposely identify parts of the audit we want to do on-site, and coordinate that to make sure it’s done efficiently and effectively,” said Lewis.

To remain effective, processes and systems will need to remain fluid, as they’ll surely evolve. Auditors, said Lord, need to remain nimble and “create a foundation of quality that still provides audit quality and assurance of what we’re doing.”

“We go from one disruption to the next. We go from pandemic to war, to inflation and recession. There’s always something new for us to consider in how it could manifest into a financial statement impact,” said Lord.

Hybrid audits enable better responses to these changing times.

“The ability to balance remote is really healthy for us and our clients,” Lord added. “We’ve gotten smarter in how we use our time together for the highest and best use.”

Learn tips to safeguard the quality of your services and become more effective in a remote auditing environment by attending the AICPA® webcast“Remote Auditing: Lessons Learned.”

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