Remote audit: the challenges of re-creating the audit room during the Covid 19 pandemic

ABSTRACT

As in many other countries, the UK Government responded to the spread of the Covid 19 virus by announcing a stay-at-home policy that came into effect on 23rd March, 2020. The disruption caused by the pandemic and the sudden requirement for auditors to work from home presented some significant challenges as audit teams set about re-creating a virtual audit room. Drawing on data gathered through online interviews with audit team members and leaders at various levels within the firm hierarchy, this study examines how they continued to deliver professional services whilst negotiating challenges such as communication in the absence of face-to-face engagement, gathering audit evidence remotely and coaching/interaction in a virtual setting. The study finds that the enforced move to remote working has demonstrated that the traditional audit work model and the expectation of “being present” is not as entrenched as the literature suggests. Through identifying and understanding the challenges of remote audit work, the study also raises questions regarding the transformative power and potential of this episode for future work patterns within audit firms. This is important because research shows that employees are, on the whole, keen to work from home more often in the future and there is evidence that audit firms anticipate and recognise that the future of the audit work model is likely to take a more hybrid form.

KEYWORDS:

• Audit
• remote working
• profession
• disruption
• Covid 19

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The “stay at home” rules applied across the UK and meant that the public was only allowed to leave home to shop essentials (such as food and medicine); to undertake one hour of exercise; to seek medical assistance or to undertake caring responsibilities. Critical/key workers were identified in the legislation (such as hospital staff; those employed in key industries such as food production; front line services such as police, fire and ambulance) and were authorised to travel to and from work.

2 The highest proportion of homeworking in the UK was based in London, the centre for financial services. Many who were required to stay at home in retail, air travel and the leisure industry (Bapuji et al., 2020a) were furloughed as the Government paid 80% of their salary (https://www.gov.uk/government/news/coronavirus-job-retention-scheme).

3 Alongside natural disasters such as such as floods, hurricanes, fires and earthquakes, there are also other accounting studies that have examined the fallout/impact specifically on auditors resulting from other crises and major disruptions such as the demise of Arthur Anderson (Gendron & Spira, 2010) and the financial crisis of 2008 (Humphrey et al., 2009; Sikka, 2009).

4 Larson’s original conceptualisation of the Professional Project draws on Weberian notions of “social closure” as a mechanism for capturing a market for services and maintaining social standing and exclusivity for those with expert skills and knowledge. See also Larson, M. S. 2017. The rise of professionalism: Monopolies of competence and sheltered markets: Routledge.

5 The exception, perhaps, is the case of Saudi Arabia, where audit teams are physically segregated on the basis of gender (Agrizzi et al., 2021; Sian et al., 2020). In addition, of course, some audit-related tasks, for instance, reviewing files, are routinely completed at a location off-site.

6 Auditors experience long hours, unpredictability of work, escalating responsibilities and expectations of availability (Sian, 2021; Hewlett & Luce, 2006) and audit work is also characterised by heavy workloads at all levels within the hierarchy (Christensen et al., 2021). Further, the profession is characterized by an “up-or-out” system and a reward structure founded on the basic ideas of “tournament theory” thereby creating a tough working environment that causes many junior auditors to leave the profession (Broberg et al., 2020; Gertsson et al., 2017).

7 Psychological distance refers to “a subjective experience about a decision maker’s proximity, where individuals represent psychologically near events with more concrete, low-level thinking, and psychologically distant events with abstract, high-level thinking”. The authors suggest that such higher-level thinking initiated by remote auditing is beneficial, allowing auditors to creatively consider a greater range of causes for any unexpected fluctuations in the financial statements that can eventually result in improved decision quality (Bhattacharjee et al., 2020, p. 2).

8 The evidence suggests that online interviews are not that different from face-to-face interviews in terms of quality and that participants prefer that their interviewers are in a different city as it reduces the chances of a public encounter. It is also possible to involve more than one interviewee when they are in different physical locations (see also Gray et al., 2020).

9 See Miles and Huberman (1994).

10 Some of these were highlighted in professional guidance issued at the time: “messages may not be easy to communicate to struggling businesses. More partner time and regular updates may be needed. In many cases, auditors may also need to allow the entity more time to prepare budgets, forecasts and representation letters, and to discuss internal control findings. Communications that would once have taken place face to face are likely to take place by audio or video calls” (ICAEW, 2020, p. 2).

11 Other studies in the Covid19-related accounting literature have also observed the role of technology in the early lockdowns for different perspectives (Carungu et al., 2021; Sorensen & Ortegren, 2021; Satya & Shauki, 2022).

12 The use of live-streaming does raise some practical questions for inventory verification: (i) issues as to who exactly should be providing the video stream—a member of the accounting firm, an internal auditor or the client (ii) the video feed process might not be feasible if no one is there to manage the camera because of isolation during lockdown (iii) it may be difficult to detect details in the video feeds, such as identifying damaged/dusty goods or items that do not smell right (e.g. foodstuffs) (Appelbaum et al., 2020).

13 In the USA, the commercial use of drone technology has been authorised by the FAA (Federal Aviation Administration). Prior research has examined the increasing use of drones in audit functions and suggests that the profession considers: (i) defining the use of drones in traditional audit environments, emphasizing the continuous versus occasional use of drone technologies; (ii) extending the technical guidance on the use of drones and on the types of drone amenable to both internal and external audits (Appelbaum & Nehmer, 2017).

14 See https://www.accaglobal.com/us/en/student/sa/features/drones.html. In 2019, PwC used drone technology to capture over 300 images of the coal reserve at one of the UK’s last remaining coal-fired power stations, Aberthaw, in South Wales, owned by German energy company RWE (https://www.accountancydaily.co/pwc-uses-drones-audit-first-time).

15 Although, other recent work notes that more frequent supervisor monitoring reduces the benefits of working remotely (Bhattacharjee et al., 2020).

16 New technologies such as big data, data analytics, blockchain and artificial intelligence are likely to impact upon audit procedures helping to raise the quality and efficiency of audit processes and hence reports (Sharma et al., 2022; Ahn & Wickramasinghe, 2021).

17 The pandemic’s impact on the environment was immense. China’s carbon emissions fell by around 25%. In Delhi, pollution reduced by roughly 75% as traffic congestion dropped by 59%. A 70% reduction in toxic nitrogen oxides was reported in Paris, while satellite imagery showed nitrogen dioxide levels in Milan fell by about 40%. In the UK, road travel has decreased by as much as 73% and in London, toxic emissions at major roads and junctions fell by almost 50% (Perry, 2020).