Edmund Jenkins, Financial Accounting Standards Board chairman.

Radical changes in business models resulting in a demand for more internal and external information are driving a move toward a systems-based approach to audits, members of a panel on the financial implications of new business trends told attendees at the Financial Executives International's Current Financial Reporting Issues Conference on Monday.

Some factors impacting audits include: the Securities and Exchange Commission's concerns surrounding information technology consulting and the outsourcing of internal audits; the rising cost of talent; and new entrants in the market, including competitors who aren't in public accounting.

Other issues forcing changes in audits are downward pressures on pricing, the pressure on firms to do more work for less money and an increase in fraud, said panel member Mary Pat McCarthy, vice chair of KPMG's information, communications and entertainment practice.

"The Internet marketplace will require audit firms to move to a systems-based approach," McCarthy stated. The increasing ability of companies, such as Cisco Systems, to close their books daily, will drive a need for real-time auditing," she said.

McCarthy predicted that in the near future, auditors will focus more on measuring performance, managing risk and leveraging knowledge.

"The economy is fundamentally different from that of 30 years ago. Traditional (financial) reporting doesn't capture the value drivers," added panelist Edmund Jenkins, Financial Accounting Standards Board chairman. "New measures and forward-looking information are needed."

-- By Melissa Klein

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