The Future of Assurance Services: Implications for Academia

The AICPA Special Committee on Assurance Services was set up in response to a decline in the market vitality of the audit. (See Elliott 1994a and 1994b for background.) Our purpose is to develop ideas and initiate steps to refurbish the profession's product. This mission was conceived in response to the current and emergent audit/assurance environment, the obvious context for considering the vitality of the audit. The current audit is surely very valuable to the capital markets and to our economy, but it is a mature product that has not been growing. Over the last six years real accounting and auditing revenues for the top 60 firms have been flat despite growing GDP.̂ The market seems saturated; there is overcapacity and price competition; and the inherent reliability of accounting data has increased with improvements in business information systems. The audit service is generalized—a one-sizefits-all product—rather than tailored to the individual needs of investors and creditors and other users, yet responding to individual customer needs is one of the great messages of the last decade of economic change. Meanwhile, software that can do audit functions is a long-term threat. Imagine banks purchasing or developing such software and auditing their own debtors, institutional investors auditing investees, or internal auditing bolstered by advanced software that drastically reduces the evidence needed for an audit opinion. A large part of the immediate problem is the limited usefulness of today's financial statements. They don't, for example, reflect information-age assets, such as information, capacity for innovation, and human resources. As a consequence, they have been a declining proportion of the information inputs to investors' decision making. That translates into a declining share of the information marketplace for auditors (and, for that matter, financial accountants). Were financial statements as central to investors' decision making as they were thirty years ago, there would be relatively little concern over the vitality of the audit. However, the Committee was not intended to address improvements in financial reporting. That was the job of the Special Committee on Financial Reporting (the Jenkins Committee), which completed its work last year. Its recommendations have not yet been enacted, but it would nevertheless have been superfluous to appoint an additional committee devoted to refurbishing financial reporting. Our task is to refurbish the profession's "product" in a different sense: to identify new services in the wider area of the assurance function, an area that includes the basic audit, but goes beyond it. This must take place