Audit in the Age of Iron Man

Audit in the Age of Iron Man
Article contributed by Patricia Rocco
Written on 08 June 2017



In an ever increasing digital age it is difficult to keep abreast of the latest technological advancements. However, after revolutionising tax and accounting over the years, technology is finally looking to make an impact on the audit process, thus allowing audit to continue to be relevant in assisting stakeholders when making important financial decisions.

As businesses grow their operations become more complex, as do their IT infrastructures, generating increased amounts of data all of which must be examined. This is why it is essential that firms implement technologies in order to identify, analyse and interpret such large volumes of information effectively.

Forbes Insights survey showed that 58 percent of industry professionals believe technology will have the biggest impact on the audit process in the coming five years. However, it would seem that this technological advancement is not happening fast enough. KPMG’s 2016 CEO Outlook Survey showed that 81 percent of CEO’s are concerned that organisations are still not investing enough into technologies.

So how will the audit process change over the next 5 years? Audit partner at MaloneBailey, Jimmy Thomson and National Audit leader at RSM, Joel Shamon believe a remote audit approach and use of technology such as drones and video calls will be more commonplace when performing the testing part of the audit. Shamon explains “Instead of working with the client’s finance, we’ll be working more with their IT department to get access to information and to test through transaction cycles” [1]

One of the fastest areas of innovation is artificial intelligence (AI, also referred to as cognitive intelligence), which is described as the development of computer systems able to perform tasks that usually require human intelligence. These technologies can automate tasks that have been performed manually by auditors for decades, allowing them time to focus more on evaluating complex analytics and exercising their professional judgement. Imagine having a Siri (or Google now for you android lovers) assisting you every step of the way when conducting your audits, it would be your sidekick, as Jarvis is to Iron man.

One area in particular where auditors are taking advantage of AI is when sifting through vast amounts of contracts and extracting terms, which is usually a time- consuming manual process. Natural language processing (NLP) can not only read and understand important information in the documents, but can be trained to recognise key information with sample contracts. This type of technology can allow auditors to examine larger samples of documents, or even all of them if necessary.

AI can also allow auditors to obtain and analyse information from non-traditional sources, including social media, internet, TV and radio. Which lets be honest would save time when trying to ‘facebook stalk’ the company’s stakeholders manually.

PWC are among the firms leading the transition “We have recently rolled out software to our audit teams that helps them interrogate and analyse large volumes of transactional data. The built-in algorithms and visualization technology helps our teams better understand their clients’ businesses and provide more meaningful insights.” [2]

Blockchain technology (a decentralized and distributed digital ledger that records transactions across many computers in such a way that the registered transactions cannot be altered retroactively) [3] is also expected to have an impact on the audit process in the coming years. According to Cindy Fornelli, the executive director of the Centre for Audit “Blockchain has the potential to transform the audit as well as financial reporting at large. By streamlining processing and eliminating duplicative work, it can help us create a more efficient and more secure way of conducting an audit while potentially providing better quality data. Auditors may be able to test 100 percent of inventory figures, rather than just test samples.” [4]

The introduction of such technologies does raise another issue however. Firms must not underestimate the amount of investment that is required to train their existing and future staff members on such softwares. It will also be essential that relevant skillsets are implemented into university curriculums allowing accounting graduates to hit the ground running when commencing their new jobs. Likewise the relevant accounting qualifications should evolve to test for some of these specific skillsets. Pwc conducted a survey in 2015 which indicated [5] 50% of millennials highlighted development opportunities as an important aspect of their chosen workplace.

In conclusion, leveraging off such technologies will make the audit process more streamlined, not only allowing auditors to save time, analyse large volumes of data, or identify duplicate data but it will also allow auditors to identify areas of risk that organisations may not have previously contemplated. Trends in technology will continue to challenge the traditional audit approach and way of thinking, and it is the market’s reaction to such innovations that will pave the way for the manner in which audits will be conducted in the future. However, it is important to recognise and invest in not only the technologies but also your staff in order not to be left behind.

[1] ‘ Scoping out the audit of the future'– Accounting today
[2] ‘The evolution of auditors, How skillsets are changing’ PWC
[4] ‘Scoping out the audit of the future’ – Accounting Today
[5] ‘The evolution of auditors, How skillsets are changing’ PWC

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