Future Innovation in the Audit Process
In recent years, the profession, including the audit industry has come under the spotlight for being in danger of losing its most vital asset – trust.
Michael Izza, CEO of the Institute of Chartered Accountants in England and Wales (ICAEW) noted that a “continual cycle of high-profile corporate failures” has produced a “palpable crisis in public trust” in the profession, and “fundamental change” is required for it to be regained.
While a variety of changes need to be implemented to ensure trust is instilled again, and various reviews are currently underway to bring these about, a key driver for improvement comes in the form of harnessing the power of technology including data analytics.
Accountancy Age recently covered a blog which looked at how technology is advancing the process of audit and how audit of the future needs to incorporate technology in what is fundamentally a three-step process: extraction of the data; performing analytics on the data; and investigation of exceptions.
In comparison to historical data extraction techniques, which would select a relatively small sample, an auditor can now access a client’s entire system, and sort and analyse 100 per cent of its transactions for a certain data set. Where there are anomalies or exceptions the programme will identify these and provide the auditor with a report for further investigation.
This allows for more accurate results, more reliability and effectiveness of audit, and ultimately a more consistent approach.
When it comes to the investigation of anomalies, the key skills of an auditor will come into play. The quality of the auditor’s judgement will remain a critical audit success factor. This is where continued learning, education and industry development is crucial. Many firms believe this is a key topic for student learning and the ICAEW is looking at ways we can evolve its qualifications to meet this need.
In his blog ‘Engine B: Innovation in Audit’, Michael Izza talks about opening up the audit industry through technology and improving quality and efficiency by looking at innovation in audit. The premise of Engine B is that there should be an industry-agreed way to access client data, made possible through one set of common data models – this standardisation would allow greater transparency, making it easier for technology providers, start-ups and other new entrants to bring innovation into the audit and accounting arena.
This kind of market collaboration would lead to further industry-wide innovations and improvements, taking us far beyond where we are now.
One thing is for certain, technology and data analytics are offering huge potential to transform our industry. On an individual level, as a firm we at BHP are already witnessing first-hand how technology adds robustness to the audit process.
Led by Ellie Dignam – a manager who was appointed into a role to specifically lead on data analytics – we’ve rolled out the use of data analytics across our audits and we’re already receiving some fantastic feedback. One client commented: “Audit quality has improved, giving us statistics that would’ve been very difficult otherwise to obtain, and audit value has improved because it has the ability to identify any slackness in our systems – adding reassurance that everything is being tested rather than just samples.”
Importantly, this move is seen very much as an investment for BHP, rather than just an overhead. It is something we’re proud to pioneer and champion. Our firm was recently described as a ‘leading light in the UK in terms of the adoption of technology in audit’ and this is something we intend to continue!