The audit industry has changed dramatically in recent years, and there is every indication that there are many more wide-ranging changes to come. These are driven by a wide range of factors, including:
Our ‘The Future of Audit’ series will provide insights into the impact of these changes, what we are doing about them, and what this means for you, our clients.
In this first article, we will look at some of the key technology developments which are already catalysing transformation within the industry: data analytics, robotic process automation and artificial intelligence.
Data analytics is the manipulation, processing and analysis of raw data in order to generate information and insight, with many beneficial applications in the world of finance.
Accurate analysis and interpretation of financial data is at the heart of audit processes, and there’s therefore significant overlap between audit and data analytics. Low-level data analytics is already a key part of any audit, but with accelerating developments in technology, and improvements in the accessibility and quality of financial data, this is an area which is expected to increase significantly.
There’s a temptation to think about data analytics as solely a technology process, and there are many software tools that assist with this process. However, core to data analytics are the skilled people who can determine how best to approach the given problem, applying an analytical mindset to obtain practical insight from the appropriate manipulation of raw data.
Data analytics offers transformative potential for audits, but its application requires thoughtful implementation.
At Lubbock Fine, we apply data-analytical approaches to our audits, particularly around the testing of journal adjustments, and this is an approach which we know to work well. However, nothing beats a trained and knowledgeable team who understand your business, and can provide broader insights (as we have always done) supplemented with whatever additional data requirements make sense for your business.
Last year, I contributed to "The Future of Audit" whitepaper by Confirmation - part of Thomson Reuters, emphasising the need for well-trained staff to aptly apply data analytics and adapt to its evolving role in the industry. While data analytics promises increased efficiency, its full potential will only be realised when regulators and methodology providers fully embrace these new approaches and accept their increased use in the audit workflow.
Often lumped in with Artificial Intelligence (AI) and machine learning (see below), RPA is the use of software “robots” to carry out certain repetitive and structured tasks, freeing up individuals to focus on higher value, more insightful work. There are obviously large potential benefits from using such tools in the audit process. However, a key limitation is that the real world is complex, and there are often corner cases and irregularities which software robots will not be easily able to resolve. Even if the processing of certain tasks can be sped up, there remains a need for a trained and knowledgeable individual to review the output carefully, and make sure that the end result is as expected.
We have been incorporating RPA processes into our audits and this has allowed us to streamline many of our approaches. This is particularly important within the audit sector, where there is an increasing move away from small, limited sample sizes, as with large populations this might be less suitable. If required, RPA tools allow us to more easily test larger samples, increasing the quality of the audit.
This is obviously a very hot area, with many people having tried out publicly available tools such as ChatGPT, Google Bard, or the AI functionality in Microsoft Bing. The audit sector is no exception, and there is significant ongoing discussion about what these burgeoning technologies might mean for the audit sector as a whole.
AI technologies have been tasked with sitting professional examinations – for example one recently “passed” the American bar exam – and while there have been mixed results sitting UK accountancy exams, there is little doubt that it is only a matter of time before these will be passed in the same way.
AI and machine learning aim to mimic human problem-solving and decision-making skills, and they're already finding applications in auditing. An interesting area is smart sampling from financial data, where machine learning identifies outliers likely caused by errors or fraud. However, the adoption of this technology hinges on regulatory support to ensure its methods are acceptable in the audit process. As machine learning starts to be used in more subjective areas, such as the interpretation of contracts and agreements, this need for regulatory approval becomes even more critical.
This is an exciting time for audit, with the potential for technology to dramatically change the way audits are carried out. With the assistance of new technologies, we expect to not just maintain but elevate the quality of insights we provide into your company.
Our strength lies in our people, and we will continue to focus on our staff and their development so that they have the skills and expertise to navigate this evolving landscape. We’ll talk about the skills of a future auditor in a future article in this series.
With changes to technology happening rapidly, it is difficult to stay on top of cutting-edge developments. Our team of trained staff have broad experience across a range of different technology areas and are experienced in their application across a range of industries and uses, so that we can advise you on changes to systems and controls.
We’re also committed to streamlining our audit process, both in the way we process information and build our audit files. This will continue to change the way we approach the requesting of information for our audits and improve the advice and assistance we provide to you.
With our technology-led services backed by a team possessing deep understanding and the ability to provide insightful solutions, we can help you navigate the evolving landscape of audit. For a confidential chat, please don't hesitate to reach out to Partner, Sam Snelson (samsnelson@lubbockfine.co.uk)
