Cheekeong Loh, CQP MCQI, MIEAust CPEng, outlines how auditing can develop in the future.
As an industry practitioner, I have helped manufacturing organisations across geographical regions and industries achieve improvements and have conducted research, most recently into Quality 4.0 and smart manufacturing. Through my work, I have observed emerging trends, such as Industry 4.0, artificial intelligence, machine learning, blockchain, the Internet of Things (IoT) and virtual reality.
Some questions that have arisen during my research include: How would non-financial auditing, which drives areas such as quality, operational improvements and due diligence, fit into these new trends? Would the value of auditing still be as great? Would audits eventually be replaced by artificial intelligence? Would the auditor’s role and skills remain relevant in the future?
No one has a crystal ball; however, more often than not, industry disruption leads to opportunities that require different approaches to the usual way of doing things. The aspirations for the future of auditing centre around the understanding of its value in this changed environment. This will shed light on the areas that require greater emphasis moving forward.
The primary needs for an audit are to provide an independent assessment and/or verification against expectations that will eventually lead to improvements towards a desired outcome. With new trends, the opportunities that lie ahead are great. Five significant aspects are discussed below.
The value of technology in information handling, communication and the execution of audit is even more obvious following the recent period of travel restrictions. Solutions have gained in popularity, including cloud computing, SaaS (software as a service) and online conference platforms. Apart from the current remote auditing practices, there is an opportunity to enable evidence or data uploading to a secured cloud storage, utilising mobile app capabilities and pre-audit questionnaires. The audit then covers the groundwork prior to the site visit, allowing the auditor to focus on areas that require attention when on-site. Software capabilities could be developed to enable benchmarking against the industry data as well as performing further analysis to identify value add and improvement opportunities.
2. Data science
The quantitative approach to auditing and application of data science is an opportunity. Audit scores, graphics and descriptive statistics, together with qualitative reporting, are common, especially in first- and second-party auditing. This could be further expanded to utilise software algorithms to perform analysis via the application of data science and business analytics. The value of audit is enhanced by discovering insights from the study of relevant audit findings or operational data against the key organisational performance indicators. For example, a predictive analytics approach to equipment maintenance considered against productivity and capacity planning could benefit the operational overhead.
3. Value-driven approach
Following the enablers mentioned above, the value of auditing could be improved by shifting the emphasis from conformance driven to effectiveness and value driven. Different organisations have different needs and therefore require a customised focus rather than a standardised approach. An organisation may demonstrate conformance to particular requirements, but still require further advice on how it performs in specific practices, such as sustainability, complaint handling, defects reduction, asset utilisation, new product introduction and digital transformation. An objective-driven assessment that aligns to organisational goals or interests on top of general conformance verification would better address an organisation’s needs. A focused approach coupled with enhanced technology and data science will maximise value and impacts.
4. Small businesses and solopreneurs
There is an increasing trend of small businesses and solopreneurs who utilise digital technology and networking platforms to run their businesses. They often lack the resources and expertise in implementing lengthy practices and would prefer a pragmatic approach that suits their business model and level of resources. They are experts in their respective offerings, but usually need guidance in other practices and certification to recognise their capabilities and attract new prospects. A typical comprehensive management standard may seem irrelevant or unattractive to small businesses and solopreneurs, because standards appear to be more suitable to a large organisation that has the resources to maintain and implement them. Therefore, today’s standards require further trimming down to the essential areas so they can be of use to the small business/solopreneur. It is an emerging segment hungering for guidance and trusted recognition to communicate to their customers.
5. Reputation and trust
We live in a connected world, where social media, client feedback and words of mouth are common. The reputation of organisations, including certification bodies, are just as important in projecting trust as a reliable, independent assessor. Today, the reputation of an individual auditor is as important as an organisation, if not more so.
The auditor’s role from a different perspective
These opportunities give us the chance to view the role of auditor from a different perspective. The key elements below reflect the emphasis and attitude of an auditor in addressing the needs mentioned earlier.
- Add value
- Uplift morale
- Detect potential risk
- Objective assessment
While most elements are not new to an auditor, the two areas that require greater emphasis moving forward are “add value” and “uplift morale’. Value adding has been covered above.
The familiar saying “high tech, low touch”, contrasts the human elements that could not be achieved by the technology. While auditors are assertive and impartial, it does not mean that they should eliminate the human element when carrying out their duties. The auditee should be encouraged and feel confident. After an audit, they should believe that there are improvement opportunities and outcomes can be better. Although it sounds strange in the auditing context, I could not emphasise enough the importance of ‘uplift morale’.
Management guru Peter Drucker once said: “The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday's logic.”
There is no doubt that we are currently facing a world of uncertainty. Continual learning and continual improvement are vital and the CQI’s Competency Framework has provided quality professionals with a plan for continual professional development.