Posted , in Business model
Are Amazon and Google really poised to become auditors?
Contrary to what Bloomberg recently reported me as saying, I don’t think Amazon and Google are poised to become auditors.
I can be fairly certain about this, because both firms’ recent achievements strongly point to the idea that a degree of sanity prevails in their leadership. And nobody in their right mind would actually choose to be an auditor any more, would they?
I suppose I ought to concede that auditors would. For them, the mechanics of the industry work pretty well: Governments oblige companies to buy a very expensive service, every year, from a market in which, for various reasons, there are basically four players. It’s like a dream come true. Well, apart from the actual auditing itself.
For everyone else it must look like a complete nightmare: You’ll spend your life performing soul-crushingly tedious work while being watched over by regulators, governments, shareholders, and the media; you’ll get fined, or even imprisoned, when you get things wrong, and ignored when you get things right; and your clients will be desperate for the day when they can replace you with a robot that does in five minutes what you do in six months, and which charges by the hour. Which might be next Tuesday at this rate. I mean, seriously, you just wouldn’t, would you?
That probably discounts the first of what I see as three possible scenarios for the future of the competitive landscape in audit, at least for the time being—the one where Amazon and Google, not to mention Accenture and IBM, smash the dominance of the Big Four and establish themselves as fully fledged auditors. To be fair, there might have been one or two people at Amazon and Google (not to mention Accenture and IBM) who read the Bloomberg article and didn’t instantly come to the conclusion that I was an idiot for suggesting that they were poised to become auditors, because they found themselves wondering if the nightmare could look more like a dream when they own the robots. But surely technology firms are as unlikely as audit committees to countenance the idea of them actually signing off on an audit.
I think that leaves two other possibilities: One is that, precisely because nobody actually wants anyone other than a reputable auditor signing off on an audit, the Big Four retain control. Clients may put pressure on them to work with technology providers in order to increase quality and reduce costs, but as long as nobody else is actually prepared to put their name to the audit, the Big Four could just refuse to work with anyone else. They’re hardly going to struggle to convince their clients that there’s danger in handing over some part of the audit to Amazon—“Customers who read The Handmaid’s Tale also read…L’Oreal’s audited accounts! Ho ho ho!” etc.—and anyway, it’s not as though the Big Four aren’t developing their own technology.
The other sees the pressure put on auditors to work with technology providers (not to mention data specialists) becoming overwhelming, and the Big Four deciding that the smart move is to form partnerships, as KPMG has already done with IBM. It has at its heart the idea of a disaggregated audit value chain, parts of which can be performed by different providers. There’s something for everyone in this scenario: Technology firms get a piece of the action without having to actually become auditors, auditors become smaller but more resilient and possibly more profitable than they would otherwise be, and clients get the best of both worlds. But there are also challenges to be overcome, not least of which is whether auditors and technology firms can actually work together in a way that keeps clients and regulators (not to mention themselves) happy. And that’s without going anywhere near the thorny question—which also applies in the previous scenario—of where the auditors of the future will come from when graduates become robots.
Of course none of these scenarios are the one most auditors are fixated on at the moment: For them the big question is about what the regulators will do next. But I’m going to go out on a (very precarious) limb here and say that I don’t think they’re going to do anything. I might not actually think Google and Amazon are poised to become auditors, but I absolutely think the market is going to change, and until it’s clear how, nothing is exactly what the regulators should be doing.