By Mhicole A. Moral, Special Features and Content Writer
Decades ago, auditing relied heavily on manual processes, paper trails, and physical records. While effective at the time, this approach was time-consuming and prone to human error. Auditing standards were also less rigorous than they are today, with financial scandals often exposing weaknesses in oversight.
According to Ramil L. Nanola, P&A Grant Thornton’s Audit and Assurance Practice Leader, technology is the primary disruptor in auditing today. Auditing has become more efficient and accurate. Firms are also making significant investments in talent to maintain and improve audit quality.
“Organizations must foster adaptability and embrace disruption. When the COVID-19 pandemic hit, businesses and organizations of all sizes had to integrate technology into their work processes as lockdowns were enforced,” he said. “Older professionals who were accustomed to hard copies of financial statements and manual processes had to adapt.”
Artificial intelligence (AI) and digital tools are now streamlining once-cumbersome tasks. While these advancements improve efficiency, they also present challenges. In particular, the financial burden of modernization is a growing concern, especially for smaller audit firms.
“AI technologies continue to develop and become more efficient. The workforce must adapt and acquire new skills to remain relevant in the changing landscape,” Mr. Nanola said. “At times, auditors must also invest in upgrading their work devices, such as tablets, to handle complex software interfaces effectively.”
More than just numbers
Mr. Nanola emphasized the importance of digital risk management amid technological advancements, noting that the profession must remain vigilant against cyber threats.
“We prioritize equipping our employees with the knowledge to assess and detect fraud and cybersecurity threats,” he said. “To enhance awareness of digitalization risks, we mandate comprehensive cybersecurity training modules.”
According to the industry leader, P&A Grant Thornton has implemented these lessons through gamification.
“To ensure our employees understand these risks while enjoying the learning process, we present training courses through gamification,” the industry leader said. “This initiative has significantly helped our auditors assess cybersecurity measures, evaluate security protocols, and conduct vulnerability assessments.”
Beyond training, audit firms are leveraging advanced tools to uncover fraud and identify risks. P&A Grant Thornton, for instance, employs journal entry testing to verify the authenticity and accuracy of financial transactions.
“We invest in audit tools to detect unusual patterns, including journal entry testing to verify the authenticity, validity, and accuracy of transactions,” Mr. Nanola explained. “We also use IDEA, which helps analyze large data sets; and Data Snipper, which extracts data directly from uploaded documents.”
However, technology alone is not enough, according to Mr. Nanola. The push for digitalization also requires a commitment to continuous education and professional development.
“Auditors must engage in ongoing training and workshops to develop digital skills and maximize the advantages of innovative solutions,” he noted. “It is also crucial that auditors commit to continuous professional development to stay updated on the latest trends and technological advancements in the field, ensuring their skills remain relevant and sharp.”
The auditing profession requires a broader skill set that goes beyond finance, according to the P&A Grant Thornton leader. He said auditors must now collaborate with experts in fields once considered outside their scope.
“Nowadays, I believe it’s important for professionals to interact not only with finance personnel but also with programmers, data engineers, cybersecurity experts, and risk professionals, given how technology is shaping the auditing industry,” he added.
At P&A Grant Thornton, younger audit professionals are assigned to different industries to broaden their expertise. The firm believes a diverse skill set is essential, particularly in data analytics, IT systems, and cybersecurity.
“Ultimately, auditors with a wider range of skills are needed to assist clients in data analytics, IT systems, and cybersecurity,” Mr. Nanola said. “Developing soft skills is also crucial for negotiation and relationship management.”
Key regulatory changes in auditing
Audit professionals are currently preparing for this year’s industry direction as recent changes have disrupted traditional auditing models, particularly due to new regulatory changes.
New and amended standards and interpretations issued by the International Accounting Standards Board (IASB) are now influencing how businesses handle taxes, estimates, and disclosures to ensure greater clarity and consistency in financial statements.
Among the most notable revisions is the amendment to Philippine Accounting Standard (PAS) 12, which addresses deferred tax related to assets and liabilities arising from single transactions. Previously, companies interpreted differently whether they needed to recognize deferred tax on transactions such as leases and decommissioning obligations. The new guidelines now require firms to account for deferred tax on such transactions, ensuring consistency in reporting.
Meanwhile, modifications to PAS 1 and Practice Statement 2 redefine how businesses disclose their accounting policies. Instead of listing significant policies, companies must now focus on material accounting policy information. This adjustment aims to make financial reports clearer and more useful for stakeholders.
Global tax reforms have also influenced local standards, as seen in amendments to PAS 12 addressing the Organization for Economic Co-operation and Development’s (OECD) Pillar Two Model Rules. Large multinational corporations operating in the Philippines will be required to comply with a minimum 15% tax rate, part of an international effort to curb tax avoidance. The amendments provide temporary relief and specific disclosure requirements, helping businesses navigate the transition without undue burden.
Small and medium-sized enterprises (SMEs) are not exempt from these changes. The Philippine Financial Reporting Standards (PFRS) for SMEs has been updated to reflect the OECD tax reforms, ensuring that smaller entities also align with the new global tax rules.
Another change is the revised classification of liabilities as current or noncurrent under the amended PAS 1. Previously, some companies struggled with inconsistent interpretations, leading to discrepancies in financial statements. The new amendment clarifies that a liability’s classification depends on the company’s rights at the reporting date, not management’s expectations about future payments.
In a separate update, businesses using supplier finance arrangements, commonly known as reverse factoring, must now disclose more details under amendments to PAS 7 and PFRS 7. These updates require firms to specify how much of their payables fall under such arrangements, increasing transparency around liquidity risks.
These regulatory updates mean businesses must reassess their financial reporting processes to comply with the new rules. Auditors, in turn, must ensure that financial statements reflect the latest requirements.
“It is critical that auditors learn to adapt to these changes and religiously keep themselves updated on industry-specific regulations, international standards such as ISO 9001 and laws,” said Mr. Nanola.