What Is a Virtual Audit and How Are They Done? An In-Depth Look
Hi! My name is Andy Stefan, and I’m an Account Executive here at FloQast. Before joining the team as a business development representative in 2019, I was an auditor at Deloitte for a year-and-a-half, and hold a degree in accounting from Loyola Marymount University. If you’d like to learn more about my transition from audit to FloQast, you can read more here!
As the world becomes more digital — partly by choice and partly by necessity due to the pandemic — more and more aspects of work are moving to online and remote environments. In recent years, this has extended to the auditing world with the rise of virtual audits.
Spanning internal and external audits, the need to review and report on organizations’ financials and key processes no longer occur face-to-face. Instead, companies and public organizations can turn to virtual audits.
In many ways, virtual audits are just like traditional audits, except audit activity takes place remotely and digitally. Rather than meeting in person with an audit committee, for example, an external auditor might use Zoom.
And other audit processes, like reviewing financial reports, might require sharing documents more online rather than looking at physical printouts.
Virtual audits are likely within reach for those who haven’t made the shift yet, especially if you’re willing to make a few adjustments to facilitate secure, efficient audits.
Virtual Audits vs. Paper Audits
Before getting into the specifics of how a virtual audit is completed, it’s essential to clarify how virtual audits compare to other types of audits.
While virtual and remote audits are often used synonymously (though not everyone entirely agrees, as the next section explores), these generally do not equate with paper audits.
The traditional on-site audit that we’re most familiar with is also known as a paper audit since many papers are usually involved. Auditors request reports and data, and accounting staff prints them.
Virtual Audits vs. Remote Audits
Although virtual audits and remote audits are considered the same by some, not everyone exactly agrees.
So, it’s important to clarify which type of audit will happen with everyone involved, both internally and externally.
A whitepaper by Ventana Research, commissioned by Oracle, says remote audits are the same as regular audits; they don’t occur in person. Auditors ask for reports, and accounting staff provides them electronically.
But virtual audits aren’t the same as remote audits. That’s because the virtual audit gives auditors read-only access to most of the company’s accounting software and systems.
This lets auditors work in self-service mode and means accounting staff doesn’t have to respond to the long “provided by client” (PBC) list and provide reams of paper documents.
While the scope of the audit will likely be the same between virtual and remote audits, the difference is in how the audit evidence is obtained.
How Are Virtual Audits Conducted?
In some ways, virtual audits are conducted the same way that regular, in-person audits are. For example, the audit planning and reporting will look the same but will shift online.
You’ll likely need to prepare in advance to make this shift possible. That includes implementing a file-sharing system, ensuring your ERP and software can provide read-only access, and choosing a video conferencing tool you trust. However, the actual audit procedures won’t be much different.
The audit team will complete the same audit steps, but instead of asking you for documentation, they’ll get it themselves.
“Treat the virtual audit as if it were physical fieldwork – your auditor will likely ask you to be available via phone or email during the previously agreed upon specified days to walkthrough questions,” advises Wegner CPAs.
For example, the audit report may have typically occurred during one big in-person closing meeting. But perhaps in a virtual environment, where team members might be working asynchronously, it could make more sense to send results to team members online to view individually. You could then have smaller breakout sessions to discuss findings.
Similarly, as the Ventana Research report notes, audit cycles might change with more people working virtually. Instead of just happening once per year, audits might turn into semi-annual or quarterly events that make it possible to resolve issues early and reduce the amount of work that must be done at fiscal year-end.
What Technology Is Needed for Virtual Audits?
The technology needed for virtual audits can vary among organizations, but one key aspect likely has communication/collaboration technology in place.
For example, when referring to internal audits, Deloitte advises using technology and establishing protocols for remote document review. Select a collaboration tool, establish a turnaround protocol, and leverage screen-sharing and screen recording to assess processes typically reviewed in-person with the process owner.
This likely applies to external audits too. It could also even involve more advanced technology like virtual reality, such as conducting a virtual tour for companies that require facility reviews.
But don’t overlook the need for auditing management systems. The right system can cut the time and effort needed to get an audit completed.
Are Virtual Audits Here To Stay?
The pandemic has accelerated the transition to virtual audits, but this format has been a trend building for years.
It seems likely that audit activity will continue to shift to more remote environments, especially considering that many organizations saw firsthand in 2020 and 2021 how virtual audits could work successfully.
The Ventana Research report projects that most organizations will adopt a virtual audit form by 2025.
What Are the Pros and Cons of Virtual Audits?
Virtual audits offer several advantages, but it’s also important to recognize some of the drawbacks, just as there are pros and cons to in-person vs. remote work for companies as a whole.
Virtual Audit Pros
Virtual audits provide several advantages, such as how they can:
- Add flexibility; for example, auditees don’t need to be available in real-time since auditors have access to their accounting systems. This allows your team the flexibility to work on other tasks. Follow-up meetings to answer questions can be scheduled at convenient times.
- Increase efficiency; depending on how the virtual audit is conducted; it’s possible to save time. Accounting departments will save time by not having to get the PBC list ready for an on-site audit. Small changes, like lifting travel restrictions requiring auditors to physically travel to offices or facilities for reviews, can increase efficiency.
- Align with remote work; if organizations want to adopt more flexible, remote policies for their workforces, then virtual audits can fit with these new ways of working. For remote-first companies, some team members might have been hired in different geographies, so a virtual audit still enables them to participate.
Virtual Audit Cons
While the virtual audit process offers many upsides, a few negatives could come up, which you may want to plan for. These include:
- Initial implementation time; while virtual audits can be more efficient overall, it might not feel that way the first time you conduct one. That’s because it can take time to get the technology and processes set up initially.
- Potential missing information; during virtual audits, you might be missing certain information if you haven’t entirely shifted everything online. For example, specific files might exist in Excel and not in the company’s accounting software. And if the auditors can’t access it, there could be an information gap.
- Lack of rapport; team members might not necessarily feel close to auditors by not meeting in person. In-person audit activity can help build trust and confidence between all parties when body language is observed, and friendly small talk can happen.
Are You Ready for Virtual Audits?
As you can see, virtual audits offer several advantages, including conducting audits from essentially anywhere at any time, rather than needing everyone to be at the same office on the same days. Yet, there can also be some disadvantages that require advanced planning to overcome, such as choosing quality systems and getting them set up.
Even with these pros and cons, virtual audits appear here to stay. The pandemic has helped make these a reality, and many organizations will likely continue to tap into their flexibility, cost savings, and efficiency in the coming years. So, whether it’s for regulatory purposes, quality assurance, or business continuity, if you haven’t already experienced one, you may soon get involved in a virtual audit.
If you’re interested in leveraging technology to make your audits flow smoother, check out FloQast. With FloQast’s accounting workflow automation software, your company is always audit-ready because your reconciliations tie out, and all your workpapers are complete. When you grant your external auditors restricted access to FloQast, they can find everything they need, saving you precious time and aggravation. This leads to a more productive audit and a better relationship with your auditor.