Date posted: 7/12/2020 5 min read

What’s the future of risk for auditors?

Auditors are in the crosshairs as the world gets more digitally focused and demands more be done to combat fraud.

In Brief

  • The audit industry has been challenged to be better at detecting fraud.
  • Virtual audits, conducted due to social distancing, have opened up new risks.
  • CA ANZ has put forward a 15-point plan aimed at evolving how audits and governance accountability should tackle the risks of fraud.

By Stephen Corby

Failed audits “just aren’t good enough any more”, and the audit industry, as a whole, has to do more about combatting fraud or “we won’t exist as a business”. That’s according to Fiona Campbell FCA, deputy chair of the International Auditing and Assurance Standards Board (IAASB), a partner at EY’s Assurance Practice in Melbourne, and a globally lauded expert.

While Campbell acknowledges 2020 has been a hugely difficult year for most – and personally, the hardest time in her working life – the future could be even more challenging if auditors aren’t willing to move with the times and adapt to a rapidly changing, digitally focused world.

Making those changes is a large part of Campbell’s role at the IAASB, where she works on international standards, including ISA 315: Identifying and Assessing the Risks of Material Misstatement, which will be mandatory for the first time on audits commencing in December 2021.

“There’s a constant call for more reform; what more could auditors be doing around fraud, and to explain the art around what an audit is, and I get why we’re in the crosshairs,” she says.

“It can’t just be a case of us working harder as auditors, there has to be a number of ways we can approach it. I don’t have all the answers, but we have to be a part of the innovations, and a part of the solutions, otherwise we won’t exist as a business.”

Fiona Campbell FCAPicture: Fiona Campbell FCA.

“I don’t have all the answers, but we have to be a part of the innovations, and a part of the solutions, otherwise we won’t exist as a business.”
Fiona Campbell FCA, IAASB deputy chair

Meeting the challenges is vital

Even for an auditor as experienced and unflappable as Campbell – who has seen and heard it all, all over the world, for 30 years – the past few pandemic-afflicted months have thrown up challenges she never could have envisaged.

Indeed, she’s encountered new kinds of risk brought on by the previously unimaginable practice of conducting virtual audits.

“You can do some things remotely: you can look at a report remotely. But there’s added risk when it comes to audits,” she explains.

“I do some big stocktakes, and if you can’t be in the same room as the people counting stock, you do it virtually. That adds risk to the proceedings, because you’re not there seeing it for yourself.

“You have to ask them to put the camera where your eyes would normally be, so you can make sure those boxes you’re looking at are full; make sure they’re not hiding something.

“All those things you can’t physically do right now [and] there’s risk with that. And there’s added risks with people reporting results who are struggling because of the lockdowns. There’s a high incentive at the moment either to look really bad, so you can get more government funding, or to make it look like you’re not going as badly as you actually are, so your business can survive a little longer.

“The simple fact is, when you can’t eyeball the people on a daily basis, it’s much harder to tell these things.”

The downside of doing it on Zoom

Campbell describes 2020 as the hardest year of her working life and a large part of that has been due to her role with the IAASB, which would normally see her crisscrossing the globe to work with colleagues from different countries on new standards related to risk.

“With the IAASB, we had to change all of our plans from physical, week-long board meetings in one part of the world, to stretching them for two weeks, and there’s only a window in the morning and late at night when people can be on a video call to progress things,” she explains.

“The reality check was how much work actually gets done outside of the formal meetings. You might be in a room talking about changing something and you all go away to find a solution, and then over coffee or over dinner that night, you say, ‘What if we did XYZ?’

“You actually progress all of the projects significantly outside of those meeting times. And now, when you’re not physically together, that just doesn’t happen.”

15 point plan to tackle fraud risk / New ways to tackle fraud

A big change is ahead with what Campbell calls “my baby” – ISA 315.

“That was the project I had to chair: to take the old standard, take all of the input from the stakeholders, find a way to deal with the challenges that regulators were seeing, and bring the standard into the 21st century,” she says, almost managing to make that task seem run-of-the-mill.

As Campbell explains, the local tyre shop may not be dealing with big concerns over the risks of trading in an online world, but at giant companies, such as Amazon, they certainly are.

“As auditors we need to make sure we respond to fraud as stakeholder expectations evolve,” she says.

“It’s perfectly timed because the conversation is happening in a global way, with an increasing awareness and some big collapses, some big frauds, in places like the UK, where they’ve had the Brydon Report [into the quality and effectiveness of audit].”

“We’ve also had a parliamentary enquiry here in Australia [into the regulation of auditing] and we’ve got South Africa seeing significant audit reform as well,” she adds.

“We’re perfectly positioned to be part of that conversation. We are one piece of it, and we’re not the whole answer, but auditors give that assurance over the numbers, and that’s vital.”

Certainly, CA ANZ has been engaging with stakeholders in Australia, New Zealand and internationally, putting forward a 15-point plan aimed at evolving how audits and governance accountability should tackle the risks of fraud, and other risks that affect the community beyond the traditional role of auditors.

“We have to be brave enough to be part of the conversation now, otherwise it will be done to us, and we won’t like the solution,” Campbell insists, adding that failed audits “just aren’t good enough any more”.

“We have to be brave enough to be part of the conversation now, otherwise it will be done to us, and we won’t like the solution.”
Fiona Campbell FCA, IAASB deputy chair

She also advises that auditors need to not only educate people about their work, “but also help them to understand the risks and bring it all to life for the readers of those financial statements”.

Read more:

A roadmap to the future of audit

How can the public’s confidence and trust in audit be strengthened? CA ANZ has developed a 15-point plan.

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