State Board Report
We are in the fourth industrial revolution, NASBA Regulatory Response Committee Chair W. Michael Fritz said as he introduced an Annual Meeting panel looking at how technology is currently changing the profession. A. Michael Smith, national leader of PricewaterhouseCooper’s US Internal Technology Audit Services Practice, commented, “The use of blockchain is only limited by our imagination.” He briefly explained that blockchain is a form of applied cryptography, where anything collected is integrated into the process. If any single part of the process is violated, it becomes immediately visible. A simple application of blockchain is distributed ledger technology, which uses consensus to prove the accuracy of the underlying ledger.
Mr. Smith said blockchain is being employed for many different purposes, including: to verify green farming is being used; the United Nations is looking into using it for establishing a global identity for displaced people; and in the United Kingdom they are trying to apply it to the welfare system to remove black marketing. One current problem with blockchain is that it is a technological concept with no standardized framework, no COSO, Mr. Smith said. There is nothing on the basic cryptography, but that framework is being developed and he believes meaningful regulatory standards will emerge. Compliance is all about standardization, he stated.
Jeanette Franzel, Public Company Accounting Oversight Board member, said that when she thinks about blockchain, she wonders how it will impact the financial reporting process: “I do think blockchain will disrupt how we talk about global management. On the audit side, it will challenge some of those processes. It raises a lot of questions about standards and business models. Routine types of testing can be done by computer, but how does that change the skill set that accountants need and will that change happen fairly quickly?”
Changes in the use of data and technology in the conduct of audits was added to the PCAOB’s research agenda in December 2016 and has continued to be explored since then, with the PCAOB speaking to the American Accounting Association, Financial Reporting Council, AICPA, CPA firms and software developers. Ms. Franzel said she would recommend that the PCAOB develop guidance, rather than standards, on how auditors are to work with these advances. “What type of people are going to be doing this work?” she asked. Ms. Franzel recommended that there be consistency in the education required for this work. “I think there is a role for NASBA out there for establishing good pathways to get the CPA designation with specialties,” Ms. Franzel said.
KPMG is working with universities to give them access to the technology the firm uses in its audits and then helping the schools develop programs that maximize the 30 additional hours required for the CPA license, Roger E. O’Donnell, senior audit partner and leader of KPMG’s Global Audit Data and Analytics initiative, explained. He described what his firm is doing to create the people they need. “We don’t believe we are creating data scientists, but we are giving them skill sets that we think are incredibly valuable,” he stated. KPMG is now supporting 140 students in the Master of Accounting with Data and Analytics program developed with the Ohio State University College of Business and the Villanova School of Business, but overall there are 1,000 students taking this program in schools. He believes this type of cooperation with higher education is something that all firms can support, but it is not without cost.
Mr. Smith agreed that it is critical for all of the large firms to make substantial investments. He believes the distinction between tech and non-tech audits is blurring and soon there will be no distinction.
NASBA is working on how to educate State Boards on the use of the new technologies and has entered into discussions with universities, professional associations, other regulators, software firms and the large accounting firms, Mr. Fritz said. He noted State Boards are going to be asked to respond to Focus Questions about their interest in such education soon.
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