What Is Driving Technological Change In Audit?

Source: ACCA Report June, 2019.

Increase in Volume of Data

The volume of transactions and data in businesses has increased dramatically since 2016 and is expected to keep increasing in the future. It has been estimated that over 90% of the world’s data has been generated since 2016, and significant amounts of it are financial data (Marr 2018). This rapid increase in the volume of data requires auditors to be equipped with the latest available technological tools to analyze a much higher volume of data in their audits than has previously been the case.

Changes in Business Models

Businesses across almost every industry are in the front line, experiencing at first hand the disruptive changes that are also affecting their auditors. Disruptive change needs to be distinguished from innovation and technology per se: the key to disruption is that it creates innovation in business models, new ways of working in markets and new sources of value. Disruption can be enabled by technology but need not involve technological breakthroughs: it can involve simply putting existing technologies together in a new way. For example, a food delivery app such as JustEat or Deliveroo rests on some very basic underlying technology – kitchens, bicycles and a smartphone app – but puts them together in a way that radically changes the way users order food: aggregating restaurants at the user end and allowing new players to enter the market at the other, or service it in different ways (‘dark kitchens’).

‘Auditors must be able to adapt to the changes in business models of their clients.’

 Juraj Sekera, Finance Director, Vertiv Slovakia

Such technological changes in businesses and their business models require the attention of auditors of any size including small and medium-sized practices (SMPs). For example, start-up businesses now tend to have business models based on advanced technologies. Complex audit challenges could therefore come from smaller businesses too.

‘Both our auditors and us are already using advance analytics and we expect to adopt blockchain technology as soon as the supply chain of the steel trade adopts it.’  

Michalis Samonas, CFO, SIDMA S.A. Greece

‘Understanding how technologies such as Blockchain [and] Machine Learning work is necessary to enable auditors to assess and respond to the current and prospective risks of the organisations that place their trust in us.’ 

Dimitris Sourbis, Assurance Partner, PwC

Shift towards Automation

The most immediate impact of technology on the profession is in the automation or even elimination of manual and routine tasks. This movement is accelerated because it has multiple drivers. The shift to cloud-based accounting systems and the attendant standardization of processes has made data more easily and more widely available, easier to move between systems, easier to manipulate and analyze, and less prone to corruption and errors. For example, where data cannot move seamlessly between systems, the use of robotic process automation (RPA) can remove the need for manual intervention to cover the ‘last mile’. Despite this, there seems to be little appetite for ‘human-free’ audit – automation can reduce errors and spot patterns, but that merely provides the opportunity for individuals to exercise thought and judgment, and to bring into play other skills such as communication, persuasion and empathy. Auditors may find they are asked to look into fewer anomalies – but these will be the ones that count. It seems that the role of the auditor as filter, narrator and independent challenging voice remains secure.

The Demand for A Proactive And Forward-Looking Approach In Audit

The use of advanced technologies such as AI and ML, blockchain and data analytics promises a transformation in the audit profession, changing audit from a reactive and backward-looking exercise to a proactive, constant source of forward-looking insights that can be used all the time, with the auditor as the custodian and interpreter of the underlying data foundation. Even in its traditional context, technology now offers an opportunity to produce higher-quality audits that better serve for their existing purpose.

‘In order to meet society’s expectations of today and to remain relevant within the environment we operate, we have the responsibility of transforming the way we deliver on our obligation to the public. This transformation includes our response to the advances of technology-based solutions.’ 

Dimitris Sourbis, Assurance Partner, PwC

 

ACCA’s report Closing the Expectation Gap in Audit found that 55% of the general public across 11 countries believes that, if auditors followed the requirements of existing auditing standards, they could prevent corporate failure (ACCA 2019a). Furthermore, 70% believe that audit should evolve to prevent corporate failure. Although some may reasonably argue that such demands are unrealistic, technology could well help to satisfy the public demand, at least partly, in the future. An example would be the use of ML in risk assessment, ‘supervised learning algorithms can be used to help identify specific types or characteristics that warrant greater scrutiny and improve targeting areas of focus for the audit.’ (ACCA 2019b).

Do you agree?