Auditing is a relic – the future is automation
Knowledge sharing from DataSnipper
by Mujtaba Rai
Key challenges in auditing over the past 10 years
One of the first things an auditor learns when they join the exciting world of auditing is the expectation gap. The public has always made assumptions about the responsibilities of an auditor and what an audit report is meant to convey. This is an interesting aspect of our jobs, considering the public is one of the most significant stakeholders in any audit.
The public’s belief that an auditor provides 100 percent assurance in the results of their report stems from a presumed need for such an assurance, while not considering the impracticability of such a task.
Why is it impractical? Because testing every line item and every single journal entry would take so long that by the end of an audit its results may no longer be pertinent.
How does the auditing industry account for this?
A decade ago, an auditor’s methodology to providing as much assurance as possible was to follow a sample-based substantive approach, which has contributed to the expectation gap. This meant long hours ‘ticking and bashing’, mundane tasks, higher attrition rates among staff, and the taxing of scarce resources to complete said tasks. All while providing limited assurance.
Innovation: The driving force behind auditing
It’s been fascinating to see how auditing has evolved over the past decade. Auditing is shifting away from a model that relies purely on substantive testing, allowing auditors to work faster and smarter.
The first major change was a risk-based approach to auditing. This allowed auditors to focus on risk-prone areas and also use their time more effectively. However, aside from this change, the basic approach was the same as before.
Larger auditing firms also introduced audit delivery centres. These again took away a major chunk of the menial and time consuming tasks auditors had previously engaged in.
Audit delivery centres facilitated time-saving, allowing firms to accomplish more in less time with higher quality. The question remained – was this approach innovative enough to disrupt the auditing industry and bring it into a new era?
Unfortunately, the response has been no. Auditing, as a practice and an industry, doesn’t lend itself to true innovation. However, finding effective ways to address this challenge is, in fact, the true purpose of innovation.
The road to true innovation
“The price of doing the same old thing is far higher than the price of change.”
Introducing true innovation in auditing comes with challenges. Introducing new and unfamiliar technology into the industry must win the confidence and trust of clients. In other words, new tech must allow clients to feel the same level of confidence and trust as they did with previous approaches.
Another challenge is change management. Auditing as an industry is set in its ways. This is not to say it is devoid of innovation, but innovating with technology requires revamping a method of working that has been in place for decades. Also, bringing about such large-scale change is a daunting prospect.
Changing auditing provides delectable opportunities. It shifts focus to more interesting areas of auditing and also to more risk-prone areas, providing more qualitative assurance to clients and stakeholders. As a direct consequence of this, there are lower attrition rates and greater retention of high quality talent.
Revolutionising auditing with intelligent automation
In the past few years, there has been a demand to bring value to clients through innovation. Emerging technologies and accelerated digitalisation are radically changing the future of auditing.
Cloud technologies have enabled improvements in data acquisition and analysis techniques. Blockchain analysers support auditing approaches that provide clients with increased transparency on their blockchain transactions. AI and machine learning empower auditors to use advanced pattern recognition to analyse unstructured data like contracts and invoices. This enables them to gather additional audit evidence while identifying and assessing risks within large datasets.
Finally, we have Intelligent Automation (IA) which is truly changing auditing. Using optical character recognition, IA is able to ‘read’ through entire documents of evidence and match the evidence back to GL data – essentially doing the substantive testing in a fraction of the time it takes when done manually.
IA also removes the chances for phantom ticking, and the quality of matching removes human error. All the same time, IA enhances the review process by making it easier and more intuitive with its cross-referencing capabilities.
All of this sets the stage for an exciting future in auditing. A future where auditors work 9 to 5, the busy season is not busy anymore, and clients and stakeholders (including the public) have more faith and trust in auditor assurance – a future worth living in.
Now wouldn’t that be something?
Mujtaba Rai is an Audit Transformation Manager at DataSnipper. His impressive portfolio of experience spans over ten years with industry-leading organisations. A qualified chartered accountant (ACA - ICAEW), with a degree in engineering from University College London, Muj has combined his two passions to bring the world of auditing and innovation together.
