Randy Johnston and Brian Tankersley, CPA, discuss the state of audit automation with two longtime audit professionals who are now with audit technology provider Audit Sight, a platform that eliminates manual work for auditors, diligence and private equity professionals by automating financial transaction verification. Watch the video, listen to the audio, or read the transcript. The Accounting Tech Lab is an ongoing series that explores the intersection of public accounting and technology.
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Transcript (Note: There may be typos due to automated transcription errors.)
SPEAKERS: Randy Johnston, Brian F. Tankersley, CPA.CITP, CGMA, Jonathan Womack, CPA, and Michael Zimmerman, CPA.
Randy Johnston 00:08
welcome to the accounting Technology Lab. I’m your host. Randy Johnston with co host Brian Tankersley and we are super pleased to have a couple of guests to discuss audit with you. Today, Jonathan Womack and Michael Zimmerman have agreed to just talk about the state of what’s happening in the audit profession. See assurance is changing an awful lot here in the US market, and as I watch what firms are doing in their compliance practices with tax and audit, it has been an interesting time period, and this is going to be one of the more volatile periods we see, perhaps, over the next three to four years, as the transition is occurring. So if I could, I might ask each of you, Jonathan and Michael, to introduce yourself. So Jonathan, would you like to go first?
Speaker 1 00:57
Yes, of course. Randy, hi. Jonathan Womack, I’m a CPA. I’m the co founder and CEO of audit site. I started my professional career working at pricewateringhouse Coopers. I did audits for eight years, focused on private companies, although a few of my companies went public and so got to see them get listed and ring the bell on Wall Street. For the last eight years, I’ve been in technology. So before audit site, I built a bookkeeping software called insights officer, where we would connect to accounting systems and try to automate some of the blocking and tackling in the month end close process. And for the last four and a half years, I’ve been now working on audit site to go back in time and help my younger self my first few years working at PWC.
Randy Johnston 01:47
Well, it’s super you know, I’ve had the pleasure of having a lot of experiences through the year, and even though I’ve helped a lot of companies get to public I’ve never got to Wall Street to ring a bell. So that’s quite the experience, I’m sure. Well, Michael, how about for you?
Speaker 2 02:01
Please? Yeah, thanks, Randy. A pleasure to be here. Michael Zimmerman, CPA as well. Like Jonathan, started my career in public accounting on mostly public company audits myself over at Ernst and Young did 10 years with the firm there, notably, did six years Down Under in Australia, where I focused on helping a lot of clients go from early stage, all the way through acquisition or IPO, as well as a number of private companies, primarily in the audit space, number of consulting projects as well. And then I also led the business development efforts for the practice in Oceania. And after 10 years with the firm, returned stateside and joined forces with Jonathan and the team last year, as we continue to grow our business at audit site. And like you said, continue to help, help our former selves who sat in the seat in the practice.
Randy Johnston 02:45
Wonderful. Thank you, gentlemen. So Brian, I know you’ve often introduced yourself as a recovering auditor, because you’ve done both internal and external audit, and you and I have been watching this transition in audit occur as it’s gone closer to 100% audit in as opposed to, you know, sampling environment. The tools are changing so much, the quality standards kicking in. But, you know, we can just go on and on about the different things. So you know, when we were going to ask Jonathan Michael to join us today, what type of things were you concerned about in the audit profession and in the assurance practices, you know, at this point in time. And then we’ll let these guys, you know, show some of their expertise in this area.
Brian F. Tankersley, CPA.CITP, CGMA 03:32
Well, it’s very interesting time. You know, we’ve got private equity coming into the profession, and we have lots and lots of M and A activity, it seems like in a lot of other industries, the economies of scale are such that, especially surrounding some of the investments that are necessary for AI, that bigger has more resources, you know, more than just a linear increase in ability To get things done. You know, the offshoring is also a big concern here. Privacy is a big issue. And again, this 100% of 100% auditing we talked about here. And continuous auditing has been going on in the, you know, in the Big Four for years. So, you know, again, you look at how General Motors Ford, and, you know again, fortune 500 companies, you know, Coca Cola, fortune 500 companies that get audited. It’s really a continuous audit, okay? And that’s something that’s going to make its way down into small and mid size audits. So with all that background, guys, Michael, talk to me about what trend, Michael and Jonathan, talk to me about what trends you’re seeing in the profession and kind of what where you see things going from that perspective? Yeah, I can start with that, Brian, like you said,
Speaker 2 04:53
it’s fascinating with how the firms are adapting and changing in this technology driven environment, and when we look at the. The top 100 firms each year, that list continues to change. It can look very different year to year as firms continue to take on PE money and grow in organically or organically. And a big thing we see through that is the desire for them to become more and more efficient, and the technology driven aspects of that, and in doing so, they have to retain their staff. And so we see a lot of firms looking to us and looking to other solutions to find ways to continue to do that, and some of that is a continuous audit. How can we spread the audit work throughout the year and make busy season less heavy? Is that look a lot more like doing Day Zero work before we get into the field? Is that continuous connections to our clients accounting systems that allow us to pull data real time and also save burden on the client. Those are the things we’re starting to see as the firms grow and need to find efficiencies beyond just doing the traditional offshoring or other cost efficiencies.
Randy Johnston 05:52
And Michael, to that point, you know, as I’ve watched the firms transition through the risk assessment standards and just trying to balance all of this work, it has been tough. You know, the good news is that many audit practices are more profitable. Governmental seems to be far more profitable over the recent past, and the efficiencies that we’re seeing in Employee Pension Benefit offerings and many other specialties are a big deal. So Jonathan, what other big trends do you see across the audit profession right now?
Speaker 1 06:25
Yeah, Randy, we see automation in the test of details. Field work is becoming easier and easier. There are solutions out there in technologies that extract data from PDFs and match it to the general ledger. And so there is becoming less and less of a need for test of details that don’t require judgment. We have automated sampling tools to make our selections. We have PPC portals to have the client upload it, and then when the data is uploaded, we match. So this simple binary one and zero testing is shortly going away. It’s not going away in all instances, but some of those sample sizes where I’m testing 40 revenue transactions and it would take me a day, might take me 30 minutes now, because I’m just reviewing the work the automations performed.
Randy Johnston 07:24
Yeah, very fascinating. And you know, I was just thinking about all of the different extraction tools that we’ve talked about in prior accounting Technology Labs, and we’ll point you to some of those in the notes for this show. But you know, I think one of the things that Brian called out was the outsourcing of audit talent, and basically a lot of top talent being wasted, being kind of an issue. So, you know, the as I look at the US accountants, you know, the challenges with recruiting and retaining talent, I think continue to be quite real. We’re quite concerned about the shrinking of the profession. We’re not going to quote stats here unnecessarily today, but if, in fact, within 10 years, 75% of the accountants are gone, which is about the right ratio right now, you know that’s going to be a completely different environment. So what might you guys talk to us about in terms of talent, talent,
Speaker 1 08:25
talent is going to be the key for success as the automations and the AI gets better and better, having the talent to come over top of it and be the experts in very nuanced industry specific accounting complexity or trends is going to be why you choose your CPA. There are so many things that this next generation of CPA have done in their life. From when they were born, they’ve had all these technologies, they’ve had all these superpowers, and then they show up to start their professional career, and it’s almost like you’re crippling them. You’re taking away this automation that they’ve literally had their entire life, and other in other parts of it, and you’re saying like, hey, actually you need to go back in time 20 years to work at the CPA firm. And so we are driving talent out because we’re making them do things that they’ve never had to do before in their life. And so what we want to do is create environments where smart people who want to help clients who like accounting stay and so that’s one of the reasons that we built audit side is to take out the things that I didn’t like doing when I first started my career, which drove me to leave the profession.
Randy Johnston 09:48
Yeah, that makes good sense, because Brian and I have discussed AI automations in tax and audit and in client accounting services, and it feels like. Like many of the new staff, auditors, are still doing a lot of those manual tasks. And the difference that I encourage many firms is get your technology right, because, you know, you’ve got a lot of things that can be automated today, and as the firms continue to fight, you know, their realizations and their utilizations in a lot of these audit practices. In the last 48 hours, I’ve actually had those discussions with multiple managing partners, and it’s been fascinating to see where so many firms are at. And you know, the other part of this seems to be the interest in growth. Now we recognize in our listeners that some of you are quite happy with where your firm is at today, and you’ve got all you can say grace over with the number of clients and the amount of work that you have, we understand that. But we also see other firms that are aggressively trying to grow, whether they’re PE backed and have numbers that they have to hit, or they’re just trying to maintain their own independence, if you will, and not be acquired. So how do you see this ability to grow practices or top line revenues in this environment today?
Speaker 2 11:16
Yeah, I can start with that one, Randy, I think the big piece to emphasize with that is your ability to standardize your procedures across the practice. The big thing Jonathan and I see, particularly in areas like he’s speaking about with manual test of details, is you’ll have people come in even high risk or low risk areas, say, testing revenues, for example, where a firm will have a completely test, different testing approach on this one client to this other one, and it might even be the same exact type of business or industry where they’re doing revenue sampling over here and doing a selection of 40 and over here, doing analytics, and then over here, maybe they’re just doing journal entry testing, and that can open up gaps in the firm, not only from efficiency perspectives, but really from a risk perspective. And so what we see is when you can come in and standardize that testing approach, and through doing that, limit the amount of time you’re spending on archaic sampling and test of details that not only allows the firms to get a lot more efficient and profitable when they do have to meet numbers like you’re talking about, not only from a top line growth perspective, but also in preserving margins on each job. That also is allowing them to de risk their practice, allowing them to continue to have high quality throughout and that only not makes their clients happy and their teams happy and their staff happy, but also people that they’re looking to buy, or people that might want to invest in them as a practice. And so it’s really a no brainer when you look at it from all these aspects, in testing approaches, whether it’s a high risk or low risk area, as they look to just to improve their technology and their approach.
Randy Johnston 12:54
I’ve always been amazed when I analyze audit practices, how different locations or different partners and different binders. If you want to use that level of analyzation, it’s amazing how different they are to me. And it’s like, you know, wouldn’t you be far better off having consistent procedures? And of course, we’ve been proponents of consistent workflow processes, procedures and standard operating for 30 years, or something like that. And I’m actually quite surprised that the peer reviewers don’t push a little harder in this area as well. But you know, who am I to call as long as they’re getting peer review passed? I guess that’s probably all right, but to me, it’s got to be really frustrating to the staff, Senior Manager, auditors assigned, and frankly, audit partners that are doing this review work.
Brian F. Tankersley, CPA.CITP, CGMA 13:49
So well go ahead. So guys, you know both of you have significant recent, fairly recent, Big Four experience, and you probably have a lot of contemporaries that are still in Big Four and different kind of roles. And at the same time, you’re looking at large and mid sized firms as well, with your firms of all sizes, with your product. What are you seeing as the major differentials between the way the Big Four and the auditing and the kinds of technologies they have and the kinds of technologies available for purchase, for, you know, let’s say a top 100 firm, or somebody like that, you know, talk to me about, you know, because, again, the Big Four, as I recall, the Big Four, are bigger than the rest of the top 100 combined, and so they have such and their clients are so much larger they have to adopt this technology much earlier in order to audit those systems. So talk to me about that, and what you’re seeing maybe as a potential for where we’re going in the future with private company audits.
Speaker 1 14:58
Yeah, Brian, I think I. It’s always great to reflect on the clients that they are serving outside of the big four you work with. You know, these companies that might not have a controller, their problem might be literally reconciling cash. Someone took vacation the last week of the year and forgot to do the December bank rec. And so the problems and what you’re looking for and how you’re serving those clients look way different than the General Motors where you’re testing all these IT compliance, because they have these homegrown accounting systems versus you’re auditing a company on stage intact, right, that didn’t build their own system. So once you’re outside the Big Four, life looks different, because your clients and what they struggle with look different. And so you think about what are the tools and things that I can use to help solve my problems, ultimately, my clients problems, so things like data extractions, things like these matching where you can help figure out, are they doing the basic blocking and tackling? That’s where I see where they can invest in tools. The Big Four are investing in things that aren’t scalable because they have these massive audit clients that pay them $100 million a year to audit them. So they can build this bespoke automation right that really serves them. They can invest in all these unique RPA workflows where, outside of that, how do we think through just getting the basics down pat for our audit clients. So the tools look a little different, because the job looks a little different.
Randy Johnston 16:48
And yesterday, I was actually talking to a just left eny auditor, who was talking about the RPA tools and the new ways that she was having to accommodate these smaller companies that she was in, which is pretty fascinating. And, you know, my opinion is that we’re actually going to see more fraud committed in this window than we’ve seen in quite some time, for a variety of reasons. But, you know, a lot of firms that are having prep, comp, review and audits done think that the auditors are, you know, in the middle of, you know, fraud detection, you know, which is, my opinion, a separate service. But you know, what are some other things that help address key focus areas properly? You know, standardized approaches, in my mind, seem to be one of those things. But what might you guys call out in that area?
Speaker 2 17:41
Well, I think to segue off of Jonathan’s point, particularly when you’re not auditing in a big four environment, you’re not taking a controls based approach. Most of these audits, and the majority of our users are using fully substantive approaches. And so in doing that, you have a little bit more risk. Sample sizes are naturally larger, so your ability to reduce that, or take a very risk based approach on the accounts that matter and test sample sizes, or only use substantive analytics that corroborate the assertions that your need to test is really important. And so to Jonathan’s point, every client can be different in that. And so our ability to go in and help teams think about the actual risk around their testing is really important, and so a big area of focus for us is, how do you improve your journal entry testing that SAS 99 that fraud test that you’re talking about, where a lot of teams will just roll forward testing criteria or sampling criteria without actually taking a risk based or logical approach to that. So for example, they might filter on preparer ID or date in their testing, and they’ve just done it that way for years and never challenged it. Well, that doesn’t necessarily make sense, in our view, if you’re taking a fully substantive approach, because you can’t rely on the system’s output for date or the system’s output for prepare ID because you haven’t tested the controls of that system. So are you taking a step back and going, okay, am I testing the right risk and the right way, rolling forward the journal entries substantively and then really only focusing on my risk areas, revenue and expense, for example, and then moving on beyond that, when you don’t see anything that falls outside of your expectation, those are the kind of conversations we’re having in the field, with people who are taking fully substantive approaches and dealing with clients who aren’t as complex or aren’t as sophisticated.
Randy Johnston 19:28
Yeah, so, Michael, when we were first doing the risk assessment standards, because I sat on that committee at the AICPA so many years ago, you know, I knew that the tools of the day would not support the proposed standard, you know, kind of number one in that area. And number two, today, I still see way too many firms rolling binders forward, not changing what they’re testing. And frankly, the one that just kind of makes me shake my head and want to cry a little. Bit, but I laugh at the time is, oh, you’re rolling these errors forward, so we look back. Oh yeah, you had this error two years ago too. Hey, you’re really doing a good job of rolling this stuff forward with errors. So, you know, I’ve commonly said, look, let’s start with kind of a clean slate. And I understand the advantage of, you know, rolling a whole binder forward, but really taking, you know, a test, either customized for the client or to comply with, you know, modified standards year by year, just seems better. But I understand not enough hours in the day to do some of that. So it does make sense in my mind that, you know, documenting this and getting the journal entries tested correctly and so forth. That does seem to make a lot of sense. So now, part of the thing that I think firms have tried to do is they’ve tried to cure some of their talent shortages with offshoring or outsourcing. And you know, what type of challenges have you noted with the offshoring model, which is becoming far more popular, as I see it in audit today.
Speaker 1 21:14
Yeah, Randy, we have wild views on offshoring from customer to customer. Some people, when we bring the topic up, say, Don’t ever say that word again. Some people can’t get enough of it. And some people are kind of experimenting, trying to find the right fit of like, where this would fit into their practice. You know, stepping back just thinking through the last topic and offshoring, we need more help. There’s not enough people to do it. Technology is not going to go fast enough, so there’s going to be a short term need for this. So what we’d like to think about is like, how to set this up for success. How do you design this experiment if you’re using it for the first time to be a success? How do you stack the deck? And what we think about is, how do you enable that offshore team with the right tools, with the right process, with the right authority, to actually be successful? So when we work with our customers in offshoring, we think about setting up a manufacturing like we’re going to do an assembly line where the right people are doing the right jobs. And so what this allows you to do is to create this standardized process. So let’s say I’m starting an audit. That’s great. I need to get general ledger. I need to get the banking data. I need my offshore team to get that data. Run these preliminary tests over the data. We can do things like verify they record all their bank transactions. We can set up your planning analytic. We can identify unusual revenue journal entries. They then can take the first pass of the review of the output of the test and add their initial conclusion. They then can go and pass it over to the CPA to do the final work. I think a lot about when I get to the doctor. I don’t walk in the doctor’s office and see the doctor immediately. I go, I check in with reception. They get my insurance cards, I’m filling out my paperwork. I then go see a nurse. They run my diagnostics, they’re taking my temperature. And then the doctor comes in. They’re coming in at the right time at the right place. And so you can do this as a CPA firm is making sure your precious resource, ie, the CPA is and their available working hours are solving the right problems at the right time, this gating function that this offshore team can create to make sure that the CPA is aren’t wasting time our clients that aren’t ready to be audited, can be crazy impactful across your practice.
Randy Johnston 24:09
Well, so Jonathan, just listening to you, it’s almost like we’ve got a bipolar view on this right now. Like, never mention it, the name that shall not be spoken. Versus, oh yeah, I’m 100% all in on this. And I was thinking about numbers, and I was trying to see if I could pull them on the fly. Here the number of CPA is in the US versus the number of CPA in India versus other markets. And I’ve actually got those numbers, but the number is astounding, because there is 100,000 or more new CPA is minted every year in India. And what is often misunderstood is that the skill level of the offshore people is actually improving year over year, and that you really have staff and. Senior and manager and really partner review class people in these various areas. But the one stat that I was able to pull for our discussion was from the ICA, ew, IPA and others, and they currently say in the US market that 43% of all firms are using offshoring, and it depends on the size of the firm. Of course. Now a lot of our listeners, Jonathan Michael, as we talked before you know, our discussion today was, is smaller firms and a lot of very small firms obviously are not doing audit work. But it’s estimated that the firms under 5,000,012% are using offshoring, that between the five and $10 million size firms, that 19% are using it, that 10 to $20 million firms, 39% and 20 to $50 million firms, 59% and then it goes up 50 to 167% and over 100,000,079% those are pretty substantive numbers, and I’ve actually got the number of positions here as well, so you know. But just like I say, with AI, just because you outsource doesn’t mean you don’t have to check the work so you still have some of that process that has to occur. Well, sorry for taking the rant on the numbers there, but I knew that our listeners would be fascinated by those new numbers which were just published. So tell us a little bit then about how you can provide the best quality and insights to clients and of timely manner. I know that you have that near and dear to your heart. Just talk to us a little bit about what you’re seeing there.
Speaker 2 26:42
Yeah, and I think that is a byproduct of having very good, standardized, efficient processes. If you go into your audit understanding your client’s risk before fieldwork commences, you’re actually able to step back and throughout the field work, or even before you start, have an understanding of your client’s business from day one. And so we talk a lot about doing your analytical procedures early in the process, understanding key transaction flows or significant classes of transactions, before you actually deploy your team into the field. And so bringing those insights to the client and understanding that when you commence your audit is really important from a risk perspective, like we talked about reducing your risk, but then also allowing you to have those very targeted, tailored, insightful questions with your client when you’re actually setting up the execution part of your audit. So if you know they have a new revenue flow coming in before you even start field work, you’re able to sit down understand the controls around that process, if you need to the journal entry booking patterns, and then tailor your audit work to that. So that’s increasing your quality, but allowing you to ask the right questions of your client and show them you understand their business, and then reduce the back and forth. Those are the things that improve client relationships, but also back to your ability to have more profitable audits and staff retained who enjoy their work more, and they’re asking a lot more about the client’s business and the commercial nature of it, so that they understand it. And they’re applying that CPA mindset and that analytical piece, particularly around high risk areas and areas of judgment, right? Rather than going, Okay, do I actually understand this one individual Devon credit that might not be material or might not be applicable. And so we talk a lot about using technology to enable that for businesses, particularly for smaller firms, whose clients can change year over year a lot and grow, and they might not know that till they start field work.
Randy Johnston 28:35
Well, our consistent listeners know that Brian really normally asked a lot of the audit questions. So I feel actually a little remiss today, because Brian’s been pretty quiet. So now Brian, these guys are seem like they’ve got a lot of experience in the audit world. Are there other key questions that we should be asking them about the current assurance world?
Brian F. Tankersley, CPA.CITP, CGMA 28:58
Yeah, you know, I think the future is always an interesting topic. And based on what you know, again, from your years of experience in practice and from your work, what are there particular kinds of engagements or particular activities, staff activities, that are more likely to get automated in, say, the short term or the intermediate term, as opposed to the long term. You know, for example, I think about, you know, the limited scope benefit plan audits, or HUD audits, or some of the transaction testing in governmental. Talk to me about what you’re seeing and what you’re you know, just again, 30,000 foot view. What kinds of things do you imagine are going to be revolutionized by this AI revolution that’s coming through the profession now?
Speaker 1 29:50
Yeah, Brian, I think the test of details automation that we talked about earlier, that’s like the short term everyone can see about it. I. I have been crazy bullish on this idea of these AI agents that can literally sit beside you and enable you to work better. I think a lot about having meetings with my clients all the time and having to literally take out pen paper, write down all of my notes, figure out what they’re saying, then go back later, after I checked my email to take those notes, update my audit files, figure out what they were saying, Maybe I’ve got to ask for more information. And I believe that there is a world Coming soon where you have AI agents that sit on calls just like this, that are taking your notes, that are going through your audit files, updating the documentation, figuring out different things, figuring out different questions you should be asking. I am excited to have this agent be my intern, right, follow me around, do the things that I would have done as a intern or first year at PWC. The second thing that I am widely excited about is this data crunching, data extraction. Um, there’s a lot of companies in the world that aren’t on Cloud based accounting systems. Believe it or not, we’re at about 85% of the data that we get is exported from an accounting system. It is not connected via API. And I believe that world is not going to change. There’s not really a good incentive for a construction company to change their accounting system to a cloud based API. One the ROI is not there. And so while APIs connecting to the accounting system, they can be magical. You connect it, you get all this data that’s not like the world that we live in, and I don’t think the world is going to change in that. But being able to have this tooling to take the extracted data, the CSV files, the PDFs from your client, go through, extract that data, and do things on top of it, I think could be a crazy game changing initiative for the auditors, like that’s why it’ll take you three or four days to do your risk assessment. It’s not the actual looking at the results, it’s the preparation of all of this. And so as this tooling gets better, we’re able to take data from whatever system, whatever format, get it in a spot where we can start doing the analysis faster and faster, is going to be a game changer for all auditors.
Brian F. Tankersley, CPA.CITP, CGMA 32:51
So you know, you mentioned that a majority of the people, a majority of the people that are getting audited in small, mid sized firms, are not on Cloud based accounting systems. However, what I’m seeing is that is changing rapidly, okay, and with into its discontinuance, largely of QuickBooks Desktop, that’s going to force a whole lot of those small construction companies onto something else. Now maybe it’s not NetSuite or intact, but it may be QuickBooks Online, or Xero, or, you know, again, something like that. So, so I guess the question I would have here is, to what extent are you, you know, to what extent do you think that the automation is going to really displace smaller firms that don’t have this technological sophistication on a going forward basis?
Speaker 1 33:43
Yeah, I think it’s an under one important thing, Brian is, just because they’re on these systems doesn’t mean they’ll let you connect. Auditors are
Speaker 3 33:56
we’re not very pushy,
Speaker 1 33:59
right? It’s like we’re working with our clients. We don’t want to disrupt we’ve had this relationship 510, years. Say, Hey, we got this new tool. It’s going to connect to your accounting system. Okay? So you’re going to have unvetted access to my accounting system, and you can change anything like, No, I’m not going to let you connect. Okay, yeah, we’ll do the same thing as last year. So the reason that we see so many data sets uploaded is because clients just aren’t willing to connect. The clients are pushing back on where their data is. What are you doing with it? So that’s one thing, just to be aware of. Just because they change doesn’t mean that they’ll actually will connect and do it. I think, I think having that relationship will be key for these smaller firms to still be competitive. You’re in the local market. You’re seeing them at. Grocery store, you’re going out in your meeting with them in person, these larger, democratized, baseless firms that are going to be born can’t offer that. They won’t offer that. It won’t be a part of their business model. So as long as you have that relationship, you’re thinking about them and adding value to them outside of making sure their bank recs worked. That’ll be how you stay competitive and win your clients.
Randy Johnston 35:30
Yeah, so, Jonathan, your point there about the relationship part of the profession is one that is near and dear to my heart, and I believe that a lot of firms have a competitive advantage when they do that. Too many firms have become too transactional. And while I want auditors to be independent, just like Brian and I, you know, are fiercely independent on technology recommendations, we’re fiercely independent. We do see a lot of firms compromising this area because of their client accounting services practices and others. So they’re kind of blending some things together here. However, if in fact, you can build a good audit practice and really service those clients, well, that continues to be an opportunity, and a lot of those are local. So, you know, the relationship thing that you just called out that’s still in my world a big deal,
Speaker 1 36:32
yeah, the worst thing you want to do in life is change your auditor. Like no one wants to do that.
Randy Johnston 36:37
Yeah, okay, I understand that. And, you know, I sit on
Brian F. Tankersley, CPA.CITP, CGMA 36:41
kind of like gastroenterologist once they once they’ve seen it, you don’t want it. You don’t necessarily need anybody else to
Speaker 1 36:49
Yeah. So as long as you’re not disrupting the workflow, as long as you’re still competitive on price, like it’s yours to mess up, and so just keep serving your clients with and then you’ll be fine.
Randy Johnston 37:01
Yeah, and your point of private data and not connecting these systems is one I actually had not considered, but have seen clients push back on that and the privacy of data in the US market, and frankly, globally. And the ROI comment, very insightful. So appreciate it. Jonathan, well, I know our time is getting a little more tight. So Brian, I don’t want you to miss the ability to ask experts like this, you relate audit related questions, but I might have you think about, you know, key things that you’d want our listeners to know, Jonathan and Michael, because I’d like for you to think about parting thoughts. So Brian, other things from your side,
Brian F. Tankersley, CPA.CITP, CGMA 37:44
but I think I do want to ask the big the 800 pound gorilla in the room, you know, the elephant in the room, I guess it is, sorry, wrong analogy, you know, talk to me about what kinds of things AI, what kinds of things? Of Things AI used to, you see having some role in displacing and what some of the risks are with it. And again, just if you want drill down a little bit into the different kinds of AI and talk about, you know, large language models versus fuzzy logic versus other things like that, you know, what are the what are some of the parts of AI? Because it, you know, as you know, it’s not all cat GPT, which is a large language model, yeah.
Speaker 2 38:30
And maybe I’ll start with that Brian, and then pass to Jonathan for some more specific insights in terms of the technology piece. But the overarching thing I talk about with partners every day, and this is my role, and I love this. In my role is I’m meeting with audit partners all the time, talking about their risks, technology, audit approaches. And the big thing you have to do, and you have to remember as an auditor, is you have to be able to stand behind your work. You have to have work papers on your file that are re performable. And if you can’t do that, and it’s not documented, it’s not done. It has to be able to be seen by a competent third party and understand what you’ve done and be able to review it. And so you have a lot of AI modules and AI technologies coming out that are aiming to help the profession which which is very good, the intent is good, but it creates a lot of need for prompting and data ingestion that can create outputs that vary widely. You can have the same data go in and change your prompts slightly, or even in many cases, with some AI tools, use the same prompt but get a different output based on whatever statistical modeling that LLM is using, and that can become a very large risk for a lot of auditors, so you have to make sure, when you’re evaluating technology, you understand the outputs that you have, and you can stand behind them on their own. They tie back to the client’s records. They tie back to the ledger. The file is complete, the formulas are within and can be re performed and make sense. Your documentation is there, because if. Not documented. It’s not done. And so that’s a big part of what I talk about with partners in evaluating their tools is, yes, lean into the technology and lean into the efficiencies you can get from Ai modeling and other tools that are out there, but make sure what you’re putting on your file you can stand behind, particularly when a staff is preparing it and you’re coming in to review it.
Brian F. Tankersley, CPA.CITP, CGMA 40:19
Yeah, that’s you. Jonathan,
Speaker 1 40:22
yeah, I mean, I think this AI is going to make us auditors crazy, more efficient at a bunch of things, replying to customer emails, looking at first documents, but I see it more as treating the outputs, kind of like a staff or an intern did it. It’s like you still have to review the work. You’re still on the hook. Someone at your firm is still signing the audit opinion, right? And so if the AI did it, that’s great. You got more efficient, just like we have spreadsheets and we have calculators, great, but you still have to, like, understand what it’s doing. You still have to be responsible for it. It’s just a new tool in our tool belt. We think here at audit side about the right tools, using the right tools. There are certain tests that need deterministic models. They need the ones, they need the zeros, they need the trues, they need the falses. And we build automations when deterministic is the right tool for the job, where you can’t rely on an AI hallucination, we then have certain things that we do where we are using AI to help classify different data, to help write conclusions, to help do the things that llms are great for. But it’s not that that LLM is trying to verify the data is accurate and do the one and zero test. That’s really bad. It’s have the deterministic models, do the ones and zeros, do the things that you need to be 100% certain on and then have aI start interpreting those results. So you as a CPA, you’re reviewing like the right thing at the right time. And so it’s using all these tools, not blindly, using AI for things It wasn’t meant to do, or currently just isn’t really good at
Randy Johnston 42:22
Yeah, so, Jonathan, I’m just going to now go back and leverage your AI agents, because I think that does show a lot of promise. So, Hal, I’m not going to open the cargo bay doors here. You know, that type of thing. So I guess, you know Brian, I might ask you to just, you know, close up with parting thoughts. You know Jonathan and Michael, We do appreciate you being here and sharing you know your insights, because obviously you’re on the front lines in audit, just like we tend to be on the front lines in technology. So audit for us is one component of many. But Brian, any parting thoughts for our listeners?
Brian F. Tankersley, CPA.CITP, CGMA 43:07
You know, I think it’s a I think it’s a very interesting time, and I think there’s a lot more sizzle than stake at this point surrounding AI, and there’s a lot more education needed for everybody in the profession, you know, like Jonathan was talking about, you know, where certain things fit and certain things don’t. It’s not all chat. GPT, I think audits are going to continue to be around. I think agents have a great potential to bring us into the world of continuous auditing that a lot of the big firms are doing, which would, of course, require more controls at a lot of these small companies. So it’s a, it’s, you know, gonna steal from a tale of two cities here, from Dickens. You know, it was the best of times. It was the worst of times. I think it’s a, I think it’s a very exciting time to be in the accounting profession, you know, I laugh, Michael and Jonathan, when you talked about having to downshift the technology you had when you left the big four. Because, again, the Big Four can invest more in technology, just and has to, because this the sheer scale of some of these audits that are as big as small countries. You know, I when I left, you know, when I left college and went to Coopers and library, and back in the early 90s, I didn’t have a computer for the first couple of years, actually, for the first six months or so. And so everything was done on paper with 10 key adding machines and pencils. And, you know, I’ve been using, you know, Lotus, 123, for years, and had done all kinds of things with macros and things like that, and so it was very frustrating to go back from a technological perspective. But I’m quite excited about the about all the innovation taking place in the in this area, and I’m very excited to have bright minds like yours leading the charge in this area. Yep.
Randy Johnston 45:01
Well, very good. Well, Jonathan, Michael, we appreciate you spending time with us and our listeners today, and we appreciate all of you listening in we’ll talk to you again soon in another accounting Technology Lab. Good day.
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