- A host of new tech-driven tools and techniques are taking over much of the legwork, leading to a reduction in the human time and effort required to complete jobs.
- CA ANZ assurance and reporting leader Amir Ghandar FCA thinks, “There's enormous potential in the new technology to provide greater integrity in the economy and to cover risks more holistically in corporations.”
- Even though the technology for data-driven audits is here, auditors are sometimes reluctant to explore its potential .
With its long hours and propensity for staff burnout, audit has long been a target for automation. At last, it’s undergoing a revolution. A host of new tech-driven tools and techniques are taking over much of the legwork, leading to a reduction in the human time and effort required to complete jobs. The shift to the cloud has also made it easier for audit firms to find staff overseas, reducing some of the strain on the sector caused by lockdowns.
“What we’re seeing in the audit world is the true democratisation of technology,” says ‘software whisperer’ Alan FitzGerald, director of Practice Connections, who advises firms on the best tech solutions.
“Audit automation has been redefined by the introduction of cheap, accessible artificial intelligence.”
Where auditors would spend hours reviewing documents and contracts – often relying on sampling rather than the complete data – advanced data analytics can sift through all the information at once and highlight documents that show perceived error or risk.
Advanced data analytics can also be used to identify unusual payments or activities in a data set and to make predictions about future risks by reviewing and analysing historical information. Furthermore, audit software can analyse 100% of a client’s bank transactions, even if the ledger runs to millions of lines. It will spot trends in the data and even highlight suspicious or high-risk transactions for further analysis.
Even on-site audits of physical inventories are changing. Auditors are using drones to scan inventory in warehouses, the use of which largely increased during COVID-19 lockdowns. Augmented reality apps are speeding up manual stock counts.
“I’ve known auditors who pull their hair because they have to go outside and count nappies in a warehouse to ensure that the random sampling methodology is right,” FitzGerald says. “That is going to be the difference in how organisations attract and retain staff during this whole process. Who wants to count nappies?”
“I’ve known auditors who pull their hair because they have to go outside and count nappies in a warehouse.”
The spread of online audit software has even gone so far as to grant small and medium firms access to technologies that rival or even better the capabilities of the Big Four’s in-house systems. “You don’t need the infrastructure to run this stuff,” says FitzGerald. “You can rent it for a couple of months if you need. That is probably the biggest opportunity for firms who want to get into that space.”
Powerful tools at your fingertips
Pictured: Amir Ghandar FCA
Chartered Accountants Australia and New Zealand assurance and reporting leader Amir Ghandar FCA believes, “There’s enormous potential in the new technology to provide greater integrity in the economy and to cover risks more holistically in corporations.”
With such rapid change one of the challenges is for regulation and standards to keep pace with the possibilities and power of the technology. CA ANZ is involved in a working group of the Australian Auditing and Assurance Standards Board focused on technology.
“One of the key things we’ve been talking to regulators about over the past few years is really embracing the greater risk coverage and integrity possible through audit technology, and making sure the need for oversight and convention are not hampering progress,” says Ghandar.
Ghandar agrees that cloud software has in effect democratised access to the latest technologies. “Up until a few years ago, you would have needed to have an in-house team of coding staff to develop the system. That’s how big firms have developed their systems over time.
“But now a small and medium practice can purchase a ready-made, powerful analytic tool for their audits that is incorporated into workpapers,” he says.
New auditing software
Accounting software Dext (formerly Receipt Bank) and audit and productivity tool XBert started out analysing bank transactions to improve the accuracy of bookkeeping. They now offer versions of their software for auditors that provide a quality audit at a significantly cheaper price.
These tools were designed in response to Xero’s DIY mantra to business owners, who often reconcile transactions themselves and categorise them to the wrong account codes. Dext Precision and XBert can review ledgers in Xero, Intuit QuickBooks, and MYOB. They operate in a similar manner to Xero’s find and recode function.
Both programs automatically generate alerts for errors, inconsistencies and behavioural patterns, removing the need to manually analyse the transactions.
“I call it taking the robot out of the human,” FitzGerald says.
With new auditing software, auditors can, with less effort, go more deeply into the transaction sets and identify deviations, creating more confidence in the integrity of the entire business.
The Big Four continue to develop their own audit tools to suit their scale of operations. EY’s centrally developed tool is called EY Canvas and is hosted on the Microsoft Azure cloud platform.
EY Canvas has focused on automation in workpapers and the data analytics have analysed 100% of transactions for the past three years, says Tony Morse, an EY Australia assurance partner.
“We’re now seeing the benefit of the speed in which we pull millions and millions of lines of data for processing, and then analysing and documenting it with a workpaper bot,” Morse says. “All our audits are expected to get 100% of general ledger data.”
With EY Canvas, Morse can share audit documents in Melbourne with teams in the US, China and the UK. The audit teams use dashboards to manage the status of projects.
The software enables the use of analysers for various tasks. A general ledger analyser is used for journal and fraud assessment, for example, and there are analysers for inventory, property, plant and equipment (PP&E), and fixed assets. A revenue analyser looks at the flow of transactions from sales to accounts receivable to cash. “An audit committee can see that if you’re a $100 million company, $97 million has been received in cash,” Morse explains, adding the next stage is to add risk identification and flagging to EY Canvas.
The future of audit
The familiar names in cloud-enabled auditing software – Canadian-founded CaseWare, Thomson Reuters, Wolters Kluwer – are now contending with cloud-born newcomers Inflo and MindBridge, which help financial professionals identify and analyse risk across datasets.
They are all converging on the same assumption: that data analysis will define the future of audit.
While the more expensive solutions such as Thomson Reuters’ Confirmation bring greater levels of analysis, risk profiling and higher transaction volumes, solutions for small firms such as Dext Precision and XBert have popularised the use of algorithms to detect errors.
Startups Inflo and MindBridge were earlier to market with the ability to ingest ledgers with over a million transactions, analyse the data and spit out the results. Both focus on making this process as simple as possible so auditors can focus on making risk assessments rather than learning tech skills.
Inflo has invested heavily in the data acquisition process by including a full extract-transform-load process and integrations with enterprise resource planning (ERP) software. This removes the need to export data and upload it manually each time you do an audit.
Inflo has a broader range of modules, including benchmarking. The software can rank clients in similar industries and jurisdictions by cost of goods sold, payroll and rates, FitzGerald says. “You can give comparable, competitive information that helps clients develop better businesses.
“The salient differences between all the solutions is the level of AI being used – an area which in and of itself is constantly evolving – and for what purpose it is being used, for example: risk analysis, benchmarking, forecasting,” says FitzGerald.
Auditors remain reluctant
Pictured: Olwyn Connolly FCA
Even though the technology for data-driven audits is here, auditors are sometimes reluctant to explore its potential. Audit firms are more likely to overlay software on their current processes rather than re-evaluate the audit process from first principles, says Olwyn Connolly FCA, Inflo’s head of customers and a former auditor.
“The mindset that drives how audit is delivered needs to change,” Connolly says. “If you look across other industries, they are moving to data driven delivery. Health is moving to it, hospitality has already moved. Why wouldn’t we? It’s down to the mindset shift.”
Connolly believes a firm won’t get the results from new technology if it doesn’t also consider how its processes and people need to change along with AI. Either staff will become frustrated because they have the technology but the processes haven’t improved, or you’ll change processes and technology so quickly that your staff can’t keep up and burnout, she says.
“The biggest opportunity for the profession is to reinvent ourselves. I think tech has allowed us to recognise that change is needed.”
Some firms are dragging their feet because regulators haven’t approved the use of technology to accelerate audit and this doesn’t align with auditing standards.
Connolly disagrees with this approach. “The standards require you to demonstrate your judgement points and for the audit to be reasonably reperformed,” she says.
“We’ve built prompts at every point of our process. The software documents that the auditor has actually looked at what the technology is telling them and accepted that as being reasonable and in line with their expectations.”
So, how long will it take before data-driven audits are the norm? “There’s a good groundswell coming and it’s happening at the minute,” Connolly says, adding she believes the tipping point is still five or more years out.
The International Auditing and Assurance Standards Board (IAASB) has indicated technology is a friend not a foe, Connolly adds. A new International Standard on Quality Management (ISQM), due to take effect on 15 December, is a push in the right direction. It includes a section on technology that describes a firm’s risk assessment process: “A risk centric integration solution with monitoring capabilities can kick-off the right workflows when firm-defined risk events are triggered.”
Firms in the UK that have introduced continuous audit services have seen increased revenues by up to 30%. This proactive approach gives auditors many opportunities to pick-up mistyped transactions, missing invoices and other aberrations.
“This also greatly assists their clients with close to real-time information,” says FitzGerald. “That final audit is also ‘simpler’ because the auditor knows the ledger has been fixed during the previous 12 months.”
Automation impacting staff training
Like many other white-collar industries, audit teams are dealing with staff shortages. The pandemic has been a huge factor in creating a worldwide talent crunch, CA ANZ’s Amir Ghandar FCA says.
Ironically, automation in audit software may be a contributing factor to finding qualified staff. “Automation is changing the dynamics around the audit business model and the challenges around attracting and retaining the next generation of auditors,” Ghandar says.
Graduates no longer grind through three years of manual spreadsheet wrangling where they can watch seniors and develop business judgement and analytical skills. This creates a challenge mapping out new pathways from entry level graduate to experienced, mid-career professional, able to make complex audit and business judgements and lead teams.
“What is the structure of the profession? How do you bring in the right kind of expertise, and upskill people with those more advanced skills?” Ghandar asks.
To help fill the gap, CA ANZ has upgraded its CA Program including adding a focus on both real-world scenarios that integrate technical and professional capabilities, and computational thinking helping candidates understand the relevance of technologies while making use of digital platforms, and tools to analyse complex financial models.
Technology may have at least a partial answer to finding people trained to do the job. The shift to the cloud has made it easier for audit firms to find staff overseas. Firms are using Inflo to send work to associate firms during the busy season, Inflo’s Olwyn Connolly FCA says, adding technology can facilitate access to resources that the labour market is currently lacking.
“Technology is borderless,” she says. “And those firms that are part of international networks with access to other firms operating to similar or the same standards can navigate the resource scarcity through technology – in line with appropriate privacy, confidentiality and other client related working practices being met, of course.”
Smart glasses in inventory counts
While working in New York in early 2019, KPMG Australia’s audit national strategy and transformation lead partner, Elenie Panos Carey CA led the proof of concept for using smart glasses in inventory counts – an essential audit procedure.
“Initially we were talking about a proof of concept for drones but you need different tech depending on what asset you’re looking at – it’s not a scalable solution,” she says. “We thought, there has to be a way to get some sort of efficiency from visual tech.”
KPMG underwent a test with a company that makes dairy products in factories. Stocktake usually took a couple of days because someone has to fly to the city where the warehouse is and stay in a nearby hotel, Carey explains. “This tech allows them to ship the goggles in advance, save time and costs and not lose days in transit.
“Literally anyone can wear the goggles,” she adds. “The auditor is back at base and can control the goggles and what’s happening – for example, zoom in and out, walk in and out, walk to the left, walk to the right. It’s using tech to improve the client and employee experience and a great example of human-centred design thinking.”
Tech Guide: What you need to know about auditing software tools for practice
|Product/s (Company)||What is the maximum number of transactions you can review?
||Do you connect with small business accounting software?||What collaboration tools do you offer?|
|Caseware Audit System Caseware Agile Audit (Caseware)||No limit on transactions.||Xero, MYOB and QuickBooks. Or in cases where clients don’t want to provide direct access we offer the ability to import from Excel/CSV.||CaseWare Cloud (platform), Xtend (prepared by client), SmartSync (synchronisation technology), Issues (in-file feature) and collaborate between staff members in engagement files.|
|Confirmation (Thomson Reuters)
||Yes||Our tool allows parties to collaborate and communicate within the tool itself.
|CCH Engagement (Wolters Kluwer)
||1,048,576 rows by 16,384 columns, maximum capacity of what one Excel file can handle.
||No||CCH iFirm Practice Manager, CCH iFirm Client Portal, CCH iFirm Document Vault.
||Xero, MYOB and QuickBooks.
||Full Risk, Task and Process automation with team and client collaboration. Every file connected gets a client portal to share XBert risk alerts with clients, and for clients to raise tasks, and provide information back to advisors. BI reports can be shared with clients.|
|KPMG Financials Checker (KPMG)
||KPMG Financials Checker can be configured to any PDF document and automatically performs a complete add-check, casting, and internal reference check of a full set of financial statements. It is designed to not only cater for financial statements, but any reports with numbers and internal referencing including investor presentations and management reports.
||KPMG Financials Checker is a stand alone software as a service (SaaS) delivered solution designed to automate the internal accuracy checks of financial statements. Once a user uploads their PDF document, users are able to significantly reduce the resources and costs involved to perform previously manual financial statement checks. It reduces the time to complete this task, but also increases the quality of the financial statement checking process. A 100–200 page set of financials can take five to 10 hours to process manually, but can be completed with KPMG Financials Checker in less than 30 minutes. The tool can also complete highlight changes between draft versions of the accounting policy note.
|Inflo Digital Audit (Inflo)
||We have not yet reached the upper limit in terms of the maximum number of transactions that can be ingested into Inflo – the largest data set that a client has provided us with, to date, contained 1.1 billion lines.
||Absolutely, these are some of the most frequent systems that we see, and for many of these we have integrated extraction methods available that performs the extract, transform and load (ETL) process from just a few clicks.
|Dext Precision (Dext)
||Dext Precision takes all the data you or your client have fed into Xero or QuickBooks online and alerts you to any discrepancies, such as missing and bad data, as well as being able to track changes and complete back-checks. You know you’re starting from a place of accuracy, plus Dext Precision is loaded with features to improve insights, workflow and more.