Jan 03, 2022

When It Comes to Auditing, There’s No Place Like the Office

Accounting work, like so many other fields of business, has been drastically changed by the coronavirus pandemic. Many CPAs are working from home and seeing no measurable drop in their productivity and efficiency. However, when it comes to auditing, John Mulcahy of FMC Corporation in Philadelphia says there is no substitute for working in tandem with your client in their office. In this podcast, get more details on the primary benefits of in-person auditing, why issues get overblown when auditing remotely, and more.

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By Bill Hayes, Pennsylvania CPA Journal Managing Editor



Podcast Transcript

There is no doubt that the way accounting work gets done has changed since the height of the coronavirus pandemic. Many CPAs continue to work fully from home without a drop in productivity or efficiency. However, according to our guest today, John Mulcahy of FMC Corporation in Philadelphia, there would be at least one major aspect of the accounting profession that would suffer if made to continue in a remote environment, and that would be auditing.

Before we discuss the benefits of in-person auditing, can you give us a little idea of how auditing worked in the height of coronavirus, when that option for in-person auditing was taken away?

[Mulcahy] For most companies like FMC others, it was frankly a little bit of a scramble the first couple of months to figure out the best way to do what we would traditionally do onsite. We used many of the same tools that your listeners are likely using at work when they're in a remote environment – Teams and Zoom and all those products have been very helpful to us. The meetings that we had – typically held in person – we were holding using those tools. Also, there was a lot more in terms of data analytics, a lot more focus on figuring out the best way to do things without actually being onsite. So, a lot of learning happened, and I think audits were in fact getting done. We didn't put our pencils down or take our hats off and go home. We had a lot of work to do, and we were able to do it on a remote basis rather well, but as we're about to discuss, it's not the best way going forward in my view to make it 100% like that.

What would you say are some of the primary, but perhaps even unrecognized, advantages you get from being onsite?

[Mulcahy] Frankly, it is somewhat more efficient to be with the people that you're auditing. They may not feel that way when the auditors are in the conference room for two or three weeks, making demands on their time, etc.

But from our perspective, just having the person you need to talk to within reach, walk down to their office, walk down to their cubicle, and ask those questions, it's much more efficient. You get things done quicker. They're able to deal with whatever audit requests you may have onsite very quickly versus sending a series of emails back and forth, misunderstanding sometimes what's being asked and why you're asking it, that kind of stuff. I think just being onsite with the people is very efficient. Secondly, I think whoever is the leader at the site, the managers and the team leaders that you are interacting with during the onsite work, is very critical.

They get questions from their team about why are you asking for this? Or what's your focus here? Or did you think about that? There's just a lot of interaction that frankly is not possible when you're remote.

Sure, you can jump on a Teams call to ask a question, etc. But that takes more of a scheduling element to the activity than would typically happen when you're just working with the team for two weeks onsite. It's very much a different experience, frankly.

What do you say to the people who are saying, “We've been doing okay with the virtual audits, we've seen some financial advantages in some respects.” What are those folks missing about the efficiency of being in person?

[Mulcahy] Well, the first thing I say is you're right, we've had some big advantages and they're not to be ignored. Our companies have a right to understand what the … if those savings should continue or how they should continue, etc. So normally I say, you're right. I like what we've been able to do remotely. But what I would typically say is that particularly with a global company, like FMC, what you didn't get is an opportunity to actually be with the business typically in maybe another country or another location here in the US, where you were walking around in the shoes of the people that work there for a couple of days or a couple of weeks, and really experiencing how they do business and how their processes work.

Not being described just through words and descriptions by a talking-head on a Teams call, but rather you're actually with them physically and seeing how things work. You're getting to know them as a person a little better too, you're going to lunch and having dinners and things like that. It is very important. The members of my team said, "Gee, we got that audit done pretty well and efficiently and I never had to leave my basement." That's not really what auditing should be and what you should expect from an audit either. We want you to know the business well and want to know the people in our business well, and that really can't be done unless you're able to be with them face to face. It's very similar in my view to when you're interacting with loved ones during COVID using FaceTime and other tools, right?

We know that's not the same thing as being there with them and breaking bread with them in person. It's very, very similar audit-wise in my opinion. That's what you miss. That actually is the good stuff of an audit and not to be that it's all intangible. Those are truly tangible things when it comes to understanding issues that you've uncovered in the audit. Now you have that kind of personal relationship. If you run across a problem or an issue or something, you really don't understand it, you know the person a little better and say, even when you return home, you can jump on a call and you feel like you know them a bit, you know who they are and how they interact and you know a little bit about them. It's just much more of a warmer engagement. I think our colleagues who are in sales know the difference between a warm relationship and a cold relationship, a phone call versus someone that you've known for years and that kind of thing. It's very similar in audit.

An interesting negative that you identified as it relates to auditing offsite: overreacting to issues that are found in audits. So, an auditor finds an irregularity and they overreact to it. Why is that more likely when you're doing it virtual?

[Mulcahy] When people look at not being onsite, audits done remotely, etc., the concern of many is, well, you're going to miss something, you didn't walk around the plan. You didn't physically count inventory or examine a document with the person in front of you, talking to them, etc. You might miss something. And that's true. My focus is that I've noticed that it can go the other way, that is you're auditing remotely and you find what you think is a significant matter or issue or irregularity and you and your team members over Teams are discussing it, trying to figure out what's going on. You can actually spin up a story in that discussion that really has no basis in reality, that one discussion with a person onsite will kind of relieve you of any concern, that kind of thing.
Over COVID, over the past two years, there have been two or three instances, even in my own team, where we spent a day or two ruminating over an issue. We thought, “Man, I hope that's not real,” that kind of thing turned out not to be. My view was, “If you guys were sitting there onsite, that's a “get up out of the conference room and walk down to the cube and talk to the guy or girl,” and it'll take you five minutes to figure out what the real problem is there. That's the kind of thing that's very difficult to do over Zoom or other arena. So, I have a kind of sharp eye out for people not overreacting to things, because they're, again, in that environment where they're at home, they're in the basement, they're dealing with other people who are at home.

You're not there with the audit. You're not there onsite to really work through the problem face-to-face with the person and have a huddle. That can really resolve things. You can jump on a Zoom call with them, also true. But, again, that has to be scheduled out, and what are we going to say? How are we going to deal with it, versus "Hey, you got a second?" That seems a little less threatening, a little less formal. I can see that as one of the big things we're trying to deal with is making sure people don't allow minor issues to become major issues because we're not onsite and able to deal with it in person.

It's been a small amount of time since you wrote a great piece on this topic for PICPA’s CPA Now blog. I encourage people to take a look at that. It's been six months or so as of this podcast release. What is the status right now of onsite auditing? Is it getting back to normal? Are you able to visit clients, or is everything still being conducted in that virtual space?

[Mulcahy] It's still, in our business, virtual. I think it's slowly getting back. In other words, we cosource with a firm and we're starting to see those guys in our office a bit, which is fine.

It's slowly ... travel is opening up. I think it's slowly getting back but, in my view, the budget discussions this year, in many companies, will have happened. They're happening now or in the last couple of months. I'm sure, like me, everybody's looking at the spring of 2022 as now we're going to be back. Now we're going to be getting to these locations. In some form – it won't be 2018 going back or 2019 all over again, not like that – but I think you'll see it in the spring, or at least our intention is to get back out there. Today, it's similar to what was six months ago, but I see light at the end of the tunnel.




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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.