How Audits Can Retain Investors’ Trust In Times Defined By Disruptive Tech

Any business leader can testify to the transformational power of the likes of AI and robotic process automation systems. In this new world, driven by disruptive technologies, auditors and audits play a pivotal role in maintaining trust amongst investors. In other words, audits and audit quality are critical for companies looking for funding to increase growth and innovation.

However, the speed of change is also affecting the audit process itself, not to mention what investors want audits to cover.

The recent, fifth #AuditorProud day is an excellent opportunity to look at the changes caused by disruptive technology, the importance of trust in financial information, and how auditors can assist companies and investors through objective scrutiny.

Trust in audits remains high

To start with some good news: investors’ confidence in audited financial information remains high. A Center for Audit Quality (CAQ) survey showed that 78% of American adults who have invested in the capital markets have confidence in audited financial information. It mirrors findings in the Main Street Investor Survey, which ranks independent auditors of publicly traded companies as the most trusted entity looking out for investors.

One of the reasons is that verified, transparent accounting and bookkeeping information enables investors to accurately evaluate the health and potential of a business. Without such information, vetted by an independent third party, it can be almost impossible for investors to verify that they are backing a vibrant company.

For companies, audits are also an excellent tool to generate insights into their business and identify opportunities for efficiencies and innovation. Both factors help make them even more attractive to investors.

Creating trust in emerging sectors

While the generation of trust is important across all industries, it is especially crucial to emerging industries. For immature spaces, access to capital is critical to be able to develop solutions and build up a market presence. Getting access to such capital often relies on independent audits.

One example comes from our colleagues in Australia, where BDO has formed a partnership with Decentralised Capital. The goal is to provide auditing and assurance services to the emerging blockchain and crypto-asset sector. For FinTech companies, the move could lead to increased institutional interest.

As BDO Australia’s Leader for Financial Services, Tim Aman, put it:

“One of the biggest barriers holding institutional investors back is the lack of transparency about the quality of digital assets. By providing comprehensive audit and assurance services, our entry into this growing sector will be a game-changer for new investment into this asset class.”

Disruptive technology changes investors’ needs

Disruptive new technologies are affecting how investors gauge the quality of a company – not just in emerging industries but across the board. For businesses, the pace of change necessitates agility and speed. New innovations and solutions quickly turn into the new normal, before equally quickly becoming outdated. Innovation and the ever-quickening pace of technological development keep redefining how industries work. Investors looking to back a company are increasingly focused on how such rapid changes can affect their investments. Something that is equally true for the audit process and how it can build trust amongst investors.

Both our clients and we in BDO are keenly aware of the need to keep innovating to keep pace with developments. For audits, one challenge of faster change is that an audit’s focus is on historical data. In other words, we are often limited to looking back.

Investors are increasingly looking to complement such information with insights regarding risks and uncertainties, about how developments can affect long-term value creation and how to measure such aspects of a business. Meeting such demands through creating broader audits and assurance analysis is one of the challenges that our industry faces today.

How to meet changing demands

The question becomes how to meet the changing needs of investors to maintain trust. One potential answer is through the integration of more real-time or forward-looking information in audits. A complimentary answer is to continually educate auditors and further develop their toolsets.

Both of the above are priorities at BDO. As Scott Rodie rightfully wrote in his celebration of #AuditorProud day, BDO’s focus is on people. The relation between auditors and clients must be built on trust and a joint goal of creating the best possible audits. It is an approach that permeates all aspects of our culture and extends to how we hire, train, and promote. Independence, ethical behavior, sound judgment, analytical capabilities, and the ability to make the right decision are also part of how we operate. There is a strong commitment from our side to not just advise on the new, disruptive technologies but to actively integrate them in our services - for example, through exploring AI-assisted audits.

Furthermore, BDO has been proactively finding new ways of identifying synergies throughout our truly global network of experts. Our knowledge-base of over 80,000 global professionals is being leveraged to further enhance our audit processes in ways that will help future proof not just our services but also the companies that we are proud to serve.