Data analytics: is this the future of audit?
The possibilities for data analytics technology to change audit are enormous. Whether it’s identifying fraud, financial or business operational risks, big data and analytics could help auditors perform tasks efficiently. Is it therefore, time to introduce fintech studies in the audit curriculum? Saad Maniar asks…
Presently, in the finance sphere, the big debate is how data analytics has enormous potential to transform the audit profession and broader assurance services. While the technology to integrate big data and audits is still unfurling, how should the profession prepare?
Recently, I wrote about how fintech is helping companies overcome today’s challenges such as systems security, regulatory compliance, fraud, anti-money laundering, protection of consumer information, operational and third-party risk, among others. The development and deployment of technology is presenting exciting opportunities for the audit and accountancy profession, but at the same time, it is also a huge challenge for tuition providers, mid-tier and smaller firms.
The principal among these is the available skills, cost of training and preparing staff, students and developing technology, which is considerable and beyond the resources of many organisations. Presently, there is limited knowledge of data analytics and there is a huge opportunity here for stakeholders to see how data analytics could have applicability to the work of auditors.
How are auditors dealing with data analytics at the moment? The profession is still not doing very much with big data, yet. However, it’s an undisputed universal law that if you do not move with the times, the times move against you. Bigger accountancy and audit firms are already using new technology to offer more cost-effective auditing and assurance services. Small and mid-tier firms should also get involved in data analytics otherwise they risk facing extinction. The main challenge of course is to understand audit requirements from data analytics, as there is no one-size-fits-all solution, and how the technology could fit into existing audit methodologies.
Today, more than ever, businesses have larger assurance needs in the areas of data quality, security, compliance, fraud prevention and detection, and internal controls. The extra value and insights that data analytics offers to our firm’s clients is enormous. But we are not there yet.
We aim to deploy technology that achieves real-time auditing to deal with risk management and fraud detection. The first step in the progression of data analytics should be to reach a common platform with a common way of viewing data. This would lead to consistency in benchmarking which would be followed by real-time reporting and real-time auditing. Also, through the firm’s use of new audit tools, such as the Caseware audit template, technologies and methodologies we have been able to provide continuous high quality assurance that has resulted in more timely and relevant audit reporting.
According to the latest findings from a review carried out by the Financial Reporting Council (FRC), audit firms can do more to help develop and support the roll-out of leading-edge data analytic techniques with the potential to improve audit quality.
The report titled Use of Data Analytics in the Audit of Financial Statements thematic review identified that the use of data analytic techniques is not yet widespread and gives examples of good practise identified during the course of FRC audit inspections.
These include: enabling audit staff to build experience and confidence in using a specific audit data analytics tool through a structured roll-out programme and using data analytics for the first time at an interim audit date to improve the prospect of obtaining robust audit evidence at the financial year end, particularly in a first-year audit.
Other examples are; improving the effectiveness and efficiency of the extraction of entity data into audit data analytics tools by using dedicated specialist staff and/or dedicated software, and using data analytic techniques to improve oversight and consistency of multiple auditors contributing to group audit audits where organisations have global accounting systems.
Significant changes in audit approach are needed to take advantage of the new technological advances. To prepare students for these workplace changes, we need to start at the colleges and universities level, where existing accounting and audit curricula, standards that are the framework for audit procedures need to be revamped and modified to incorporate the concepts of data analytics and encourage students to utilise new technologies that will make it easier for them at the workplace.
The right training is needed for students at the college and university level and for auditors within accounting firms in areas such as information technology, statistics, modelling, and machine learning methods. In addition, exams given by respective professional bodies such as ACCA, ICAEW, ICAI and CPA, should test these areas. Universities and colleges should create new majors that are offering courses in these areas and the existing audit and accounting curricula must be changed to accommodate additional coursework.
Today, the profession is making much better use of the technological advances that we’ve seen over the last decade. Many auditors are finding ways to gain deeper understanding of their clients’ organisations than ever, thanks to advances in data analytics and software. Combined with traditional auditing techniques, data analytics could help auditors gain deep insight and provide a better understanding of their clients.
The power of data analytics could make it possible for auditors to improve audits by providing audit evidence through comprehensive analysis of organisations’ general ledger systems. This risk assessment through identification of anomalies and trends could perhaps even point auditors toward items they need to investigate further.
Changes in audit practise will continue to occur as corporate processes change, but make no mistake, this does not herald the replacement of auditors by robots. Audit data analytics software will not produce the desired results if the data entering the system are not reliable and appropriately precise. So, there will always be need for human auditors to apply their judgement skills.
Saad Maniar is the Vice Chairman of the ACCA Members’ Advisory Board in the UAE. He is also a Senior Partner at Crowe Horwath, UAE.