We are officially in the era of digital transformation where technology has greatly impacted audit processes. This has ushered changes that were hard to imagine as possible about a decade back. While the accounting profession has by and large embraced technology in various processes, it was restricted to the documentation, calculation, storage and retrieval process. However, this is all set to change as cutting edge technology dons a greater role in auditing. The clamour for different reporting and financial statements has been growing, and technology has all the right answers.
Taking a leaf out of fintech companies for the development of intelligent software
Processes that will be touched by technology will include those areas where it may be necessary for a machine to understand and use that knowledge to identify complex information. Fintech companies have been able to deploy automated solutions by leveraging the power of AI and machine learning. Auditing will similarly find a greater role for technology, beyond the present functions. For instance, technology has developed to a level where it is possible for AI powered systems to look at all the data of a company that is being audited and identify anything that is amiss. This will help auditors to turn their focus to flagged areas that need more of their attention.
Evolving reporting requirements
Present audit reporting helps investors and shareholders understand the financial health of businesses. However, in the context of a data driven world with more and more information available, there is an increasing chorus for auditors to share additional information. Stakeholders are of the opinion that auditors possess more information, than what is actually reflected in the reports. And the demand is for more contextual information from auditors about how a specific conclusion was made or arrive at. Readers want to know how the auditors arrived at a conclusion. This open the floodgates of confusion. Auditors crunch numbers and make conclusions, expecting a reader to do the same is an invitation to chaos. However, technology has the ability to present relevant information in the right form for dissemination, that is in alignment with the overall findings/conclusion.
Impact of revisions and penalties
The Financial Reporting Council released revisions to International Standards on Auditing (UK), which had more to do with the Code of Ethics. This has great significance for auditors and by extension the companies that are being audited. The changed standards, despite being limited in scope can have implications for stakeholders. This needs to be read in the context of the fines levied by the FRC, on some of the top global auditing firms for misconduct. Even as the dust began to settle over the fines and the circumstances surrounding it, most of the iconic and respected auditing firms commenced an overhaul of their systems and processes, bringing in more technology driven processes to strengthen existing processes. This will be the order of the future, as auditors look towards technology for greater compliance.
Moving from sample testing to testing of all transactions
In the future, auditors will harness technology to carry out checks of all transactions, and not just rely on a sampling or random check of transactions. While the certainly humungous volumes of transactions may have come in the way of checking out all the transactions in the past or the present, this is all set to change. With the use of the right technology, not only will all transactions be checked, they will be completed at high speed, which means that the process of checking will not add to the time element. And this aspect of checking all the transactions will help auditors to gain more insights about the financial health and other inputs about the organisation and the domain it operates. This will be invaluable to investors and shareholders who will now be able to understand reports on the basis of checking all transactions and not just a sample. Sampling has a probability of error, which will be corrected in the future.
The need for speed
The new techno-social order has turned time on its head. Processes that once took a specific period of time has now been shortened drastically. As a consequence, all other allied processes and procedures are also expected to commence/conclude at proportionate speed. Effectively, this has led to a cascading effect. Audit, resultantly, requires to be concluded faster than ever before. Manual processes do not stand a chance of delivering results at speed or with the accuracy and precision required. While it is impossible for technology, as it stands now, to replace the power of human intuition in tasks as complicated as auditing, many of the tasks that are repetitive or rote in nature need to be entrusted to technology and automated processes to be able to meet the deadlines.
Leveraging the power of blockchain for cost effective audit processes
Blockchain is the buzzword that will continue to hold sway over businesses well into the near future. And by virtue of being a distributed ledger, blockchain is the natural bedfellow for auditing processes. Auditors need not seek information or wait for clients or third parties to furnish statements, or any documents for verification and cross-verification. Auditors can simply carry out the verifications from blockchain ledgers. With the power of offering verifiable and immutable transactional information, these ledgers will save a lot of time and money, in addition to the assurance of offering information that is accurate and free from errors. This is basically, because the transactions themselves would have been carried out only after fulfilling the criteria or conditions of all –parties involved in the transaction.
Analytics only as good as the data that is fed
Analytics can be only as good as the data that is fed, which means that standards also need to improve so as to offer data that is of the right standard. While systems will be powered to detect anomalies over entire transaction history, the advantage of the perception that is available to the human mind and the logic of perspective will be unavailable to technology driven systems. This will make it mandatory for records to conform to certain standards. The quality of the data and the processes or technology that is available to bring in the data from many sources needs to be advanced so as to prevent gaps in data capture and its use.
The need for more regulations and standards
Past processes had stakeholders trying to catch up with the regulations and standards. For instance, auditors and organisations had to fulfill or meet the standards and regulations as laid down and the need of the hour used to be a scramble to meet the standards. However, with changes in the way business is conducted, there are multiple issues which cannot be met or fulfilled by existing standards. This turns the whole equation of regulations and standards on its head. Regulations and standards are now expected to keep pace with the developments and evolving changes in the world of business. Till the regulations and changes are in place, auditors and businesses will have to work within the contours of existing regulations which may not be very easy considering the inherent differences among domains.
Auditing is a proven facilitator for growth, in addition to meeting the requirements of accounting and financial reporting. While nations have their own set of policies about the size of businesses that need to be audited or not audited, it is a proven fact that auditing is one of the pillars of growth of a business. Technological innovations will assist the acumen of humans to bring about greater accuracy, improved reporting and faster conclusion. Auditing will not be limited to random checks, but will encompass the whole history of transactions for specific periods. Contrary to popular belief, technology will not take the place of humans, but will help humans in their deliverables.