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The future of Audit

Quality, Talent And Technology
Kiran Bafna
BY Kiran Bafna

TAKEAWAYS

  • More than just detect financial reporting issues, a quality audit must drive continuous improvement, enhance risk management, elevate financial planning, and provide reliable financial information in the capital markets.
  • With technology adoption, audit can assume a more strategic role in driving business outcome while navigating a constantly evolving regulatory environment.
  • Next-gen auditors, tapping on next-gen technology, are expected to demonstrate higher levels of critical thinking and judgement, and create greater value for their clients as well as their own organisations.

Gone is the image of a traditional auditor in a pinstripe suit with thick glasses, a thick briefcase, and an even thicker notebook. But while auditors may have substituted their notebook for a laptop, they must also invest in the right technology to replace dated processes and elevate audit quality in today’s complex business environment. Quality is essential for assuring the audit is being conducted correctly and efficiently.

Clients, too, expect their auditors to be current with new technologies, stay abreast of the evolving regulatory changes and professional standards, and maintain a skilled workforce that can provide the highest level of service. Virtual audits are now becoming quite common, and technology is transforming the audit process through automation and access to real-time data and analytics.

Quality, talent, and technology are all key components for success in this new era of auditing. As firms continue to invest in these areas, they will ensure that their audits remain compliant with regulations while also providing valuable insights for their clients and into their own operations.

NEXT-GEN AUDIT: WHAT A QUALITY AUDIT LOOKS LIKE AND HOW TO RAISE THE BAR IN THE AUDIT INDUSTRY

A quality audit should do more than just detect financial reporting issues; audits must drive continuous improvement, enhance risk management, elevate financial planning, and provide reliable financial information in the capital markets.

Audit technology is raising the bar

Due to the recent increase in fraud cases, such as the WirecardPatisserie Valerie, and Luckin Coffee incidents, there’s greater scrutiny of the audit industry and its processes, prompting a push towards digitalisation to drive business success and ensure business continuity.

The nature of auditing and the auditing standards against which performances are measured is constantly evolving. Regulatory changes, such as the ISQM1, specifically demand firms to establish quality objectives in relation to resources provided by service providers. This regulation also makes the firm solely responsible for the design, implementation and operation of its own system of quality management (SoQM).

The audit industry is transitioning as it evaluates the right tech investments to assume a more strategic role in driving business outcomes while traversing a constantly evolving regulatory environment.

Auditors today must have the capacity to navigate the complex regulatory landscape and meet standards like SSA 505 issued by The Auditing and Assurance Standards Board (AASB) and others for high-quality audits.

NEXT-GEN AUDITORS: HOW TO BUILD RESILIENCE, OVERCOME CHALLENGES, AND COPE WITH CHANGES

The COVID-19 pandemic and its widespread economic and social repercussions around the globe, and the rise of hybrid work models have increased the focus on improving risk assessment and management.

These shifts have revealed several areas of improvement to the audit process that need to be promptly addressed as we move into the future of work. Next-gen auditors also must demonstrate higher levels of critical thinking and judgement for greater value creation.

As such, next-gen auditors must speed up audit processes using the right technology investments. Their expectations from technology are to:

  • Elevate client collaboration, make the relationship more interactive, and ensure continuous, seamless, and secure data flow between the organisation and auditors;
  • Shift to paperless systems, completing most procedures online and allowing virtual audits for fast and reliable audits;
  • Ensure comprehensive and secure data tracking, delivering real-time information and enhanced recordkeeping with automated reporting and analytics tools for improved financial reporting;
  • Automate data in unstructured formats such as contracts, emails, PDFs, and other documents to improve audit documentation for greater accuracy, transparency, and confidence.

Technologies such as data analytics, cloud, artificial intelligence (AI), and robotic process automation (RPA) are building greater audit resilience in the face of a constantly evolving global business environment

According to the Future-Proofed study conducted by KPMG and Forbes Insights, nearly all business leaders (98%) say their external audit firm uses advanced technology extensively. Most of the business leaders have their eyes on AI (61%), smart analytics (50%) and RPA (48%).

Clearly, next-gen auditors need technology to deliver high-quality audits, save time and money, mitigate fraud risk, and build greater trust in capital markets.

ATTRACTING TALENT WITH AUDIT TECH AND ELEVATING AUDIT QUALITY

Audit firms are under increasing pressure to drive productivity while reducing pressures on a shrinking number of staff.

Millennials and Gen Z are now the dominant demographic in the workplace. Technology-powered processes, in this case, not only drive up business value but also play a central role in attracting this digitally savvy workforce, who are looking for state-of-the-art tools and processes.

Technology allows for better allocation of limited resources, reduces workloads and redundant tasks, enables people to automate tasks, and provides better analysis in appropriate areas easily. This helps to ensure accuracy and consistency in the audits conducted by the auditors, which leads to better results for both the auditors and their clients.

Given the shifts in workplace demographics, firms that still run a manual, non-digital, and labour-intensive environment will struggle to hire and retain top talent.

Organisations must also identify training needs and upskill their existing workforce to leverage technology-enabled audit processes, conduct guided audits with precision, and proactively identify risk areas. Easy-to-use technology platforms are crucial to upskilling initiatives and driving greater digitalisation of audit firms.

AUDIT TECHNOLOGY STRATEGY AND ADOPTION

As we concur that next-gen auditors need next-gen technology solutions powering up their work, moving along this path demands a clear strategy for adoption. After all, the rate of digital transformation failing to meet their original objectives ranges from 70% to 95%, with an average at 87.5%, according to Harvard Business Review.

Some of the key areas to focus on when developing an audit technology adoption strategy are:

  • Leadership and governance capabilities of the service provider and clarity on security, confidentiality, availability, processing integrity, and privacy commitments to user entities;
  • Assessing software capabilities and scope of service from the technology platform to ensure it can fulfil required activities with the least possible effort;
  • Looking for clearly documented policies and procedures to facilitate smooth change management, including documenting changes to technological resources such as operating systems, computing hardware, networks, and application maintenance;
  • A robust, comprehensive, and highly secure information security management system that protects sensitive customer data at rest and in transit;
  • Comprehensive privacy and confidentiality features, including access authentication and authorisation, access requests, and access revocation;
  • An uncomplicated and agile maintenance process with clear patch management policies for up-to-date software and lower downtime;
  • Comprehensive data protection policies, including disaster recovery and backup. Data encryption and formal incident response policies that detail procedures to follow to detect, contain, and recover from potential security and privacy incidents;
  • Robust business continuity plan to reduce risk and assist in the management and handling of operations;
  • Certifications that prove a commitment towards quality control and ensure standard privacy and security practices, such as SOC Examinations/ISO 27001.

The next-gen auditor has evolved and is one who creates value for their clients. They also become responsible for attracting, retaining, and training staff, remaining current with new technologies for better client engagement and reducing risk and fraud.

As the complexity of business, supply chains, market environments and economies increases, the question no longer remains whether the audit industry needs the power of next-gen tech. The question now is, how fast can we change and make this industry agile and more responsive to the forces of change and disruption?


CA Kiran Bafna is Managing Director–Asia & Emerging Market of Confirmation, part of Thomson Reuters. He is a Chartered Accountant from The Institute of Chartered Accountants of India.

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