Relevance is critical to the future value of audit
Audit is losing value in the eyes of our clients. It’s becoming a commodity. That decline in value corresponds to a lack of relevance. Business moves fast today, so how relevant is a set of financials for Dec. 31, 2018, that was issued on May 24, 2019? Almost half the year is gone.
Relevance is one of the attributes of a framework for audit leadership that I’ve developed over the years. The other attributes are business-mindedness, quality, innovation and empowerment. You’ve got to have leadership actually believe that audit is relevant. And leadership needs to communicate and create actions that support that relevance. You also need to teach your staff how to make an audit relevant.
To be relevant, audit needs to zero in on the intersection of what you think is important and what your clients are interested in. No surprise, but your clients don’t care about the same things you do, and in many instances wouldn’t even get an audit if it weren’t required by a user like their banker.
Like most auditor firms, I bet you’ve got lots of language on your website and in your proposals that talk about the value you bring to your audits and how you’re different from all the rest. But let’s be honest here — how well do you deliver on the “promise” of relevance you claim in your website and in your proposals?
Now my guess is you hope that maybe by some stroke of luck you'll actually be able to deliver on all those things that you said. You need a plan versus luck to make any of it happen.
Relevance starts with planning
Most auditors think of planning an audit as an exercise in filling out forms. And because their workflow is atrocious, they don’t allocate enough time to meaningful planning of their audits. Because your schedules slipped, maybe the best you can do is try to plan it on the drive to the client’s offices.
Planning an audit should certainly be much deeper than that. You’re laying the groundwork for making the audit relevant and how you drive value. Relevance depends on a deep understanding of the client, their industry, how the standards need to be applied and how you’ll audit this client.
Oh, and by the way, without gaining this knowledge, how can the engagement team understand what the risks are in the audit? Understanding the risks is a requirement of the audit standards. I believe that where there is risk, there is opportunity.
If you lack any of those understandings, you certainly won’t have any idea how to perform an audit that will be relevant to your client. However, when you combine those understandings and the knowledge base that comes from looking deeply into the inner workings of your other clients, you have the platform for relevance in audit.
Assign a relevance task
Set out the expectation at the planning stage that everyone is expected to add value to the audit by identifying areas where the client can improve. One way to do this is to assign each member of the audit team the task of interviewing someone outside of accounting who has something to do with their audit area. Have your team members ask this person about their role, about the strengths, weaknesses and areas for improvement, both for their department and the company as a whole. Have everyone write up a short summary of what they learned.
At the end of the audit, hold an open-ended conversation with the whole team about what they learned about the client’s business. Start by discussing what everyone learned in their interviews. Cement the learning by asking everyone, starting with the newest team members, to complete this sentence: “If I were running this business, I would _____________.”
Asking this question gets your team out of the weeds of the accounting standards and brings them into business-mindedness. Relevance is not a one-time event. This should be done with every audit, so this becomes core to the fabric of the firm’s culture.
Embrace technology to add relevance
A blessing and a curse of today’s technology revolution is the flood of data that every company can now harvest about its operations. We have access to so much data that it’s no longer humanly possible to gain insights in a cost-effective manner without applying innovation to your audits by using data analytics and artificial intelligence.
These tools will enhance risk identification while adding insights about the company that can be leveraged with the goal of adding relevance. They let you see things quicker and more accurately than the human eye and help you zero in on the areas with the most risk and the most opportunity. This heightened visibility and these extra insights make your audit more relevant. When you share these with your client, you add value and demonstrate relevance.
Lack of relevance means being a commodity
Everybody complains about the commoditization of the audit. So the first thing I ask is, “What do you do when you're under fee pressure from your client?” Almost everyone automatically lowers their fees. Why?
You probably haven't delivered anything more than 24 pages with an audit report on it. If that’s all you’re delivering, you’re not delivering value.
To escape commodification, you need to demonstrate that what you’re doing for the client is relevant, and that you’re providing value beyond the compliance function. But when the firm is not using any of their knowledge base to provide insights about the business, it’s no wonder that audit is seen as a commodity.
I was talking to my colleague Denise Delahanty, who told me how much the nonprofit board that she sat on loved their auditor. This auditor took the time to explain how this organization stacks up against the competition. Clients are not fee-sensitive when they clearly are receiving more value from their auditor than the fees they are paying. Plus, beyond regulatory requirements, what client goes out for an audit proposal when their auditor is providing relevant advice and useful suggestions?
From compliance to relevance
Without relevance, audit is a commodity, for sale to the lowest bidder. We miss out on the opportunity to be something more to our clients. We renege on the promises we plaster on our website and fill our proposals with.
Relevance needs to be built into the culture and the fabric of the firm. We’re really good at talking about that, but to really drive the change forward, we need to demonstrate this with our actions.
Change is hard, and it gets worse before it gets better. But trust me, it will get better. It will take the commitment and actions of leadership to demonstrate these attributes. When you make relevance in every audit a priority, then you’ll be providing real value. And isn’t value what we’re after in the end?