Technology is forming the audit profession

Technology is forming the audit profession

Technological developments have transformed how we conduct business. Companies are continuously innovating, trying to engage suitable technologies to make their business more efficient. For audit firms investing in technology has a dual purpose: 1.) to be able to continue validating the clients’ financial statements, 2.) to make their audit service more efficient. To validate the clients’ IT systems and the information extracted from them, it is essential to keep up with the clients’ technologies. Moreover, audit firms utilize the technology in their daily practises, which can potentially provide a competitive advantage. Recognising this, big audit firms are allocating more and more money on technological developments.

Now let’s see how technology is forming the audit and what the future holds for the profession.

Workforce, education

New skillset is required from employees in this field. Besides basic IT knowledge, which is expected from auditors, good communication skills, critical thinking, problem solving, analytical skills are also appreciated. Monotony tolerance, however, is less necessary, as repetitive tasks can be automated easily. Hence, these tasks can be performed without or with less human resources. Although most skills can be obtained/improved at the workplace, universities should also keep an eye on the profession and change their practices accordingly. 

Audit Practises

Sampling vs. Testing the full population

Auditors must obtain reasonable assurance to make sure that the clients’ financial statements are free from material misstatement due to fraud or error. Currently, it is done by sampling and risk assessment. However, in the future technology could enable auditors to test the whole population. At the earlier stages of the audit profession all transactions were tested, but as the size of the companies increased drastically, the profession couldn’t keep up with it. Therefore, they started to use materiality, risk assessment and sampling. But now, continuous advancements in technology may enable auditors to go back to testing the entire population.

Historic testing vs. Real-time testing

Given access to real-time data, auditors will be able to perform their tests on a real-time basis. Real-time testing could make the audit more efficient, as errors could be found and corrected immediately, preventing it from occurring again during the year. Instead of interim and final audits, the audit team could monitor the client’s business during the whole financial year.

Billing based on employee hours vs. Billing based on the utilized digital assets

As audit firms will shift more to the technology, they must consider reflecting it in the audit fees as well. They won’t only sell the time of the human resources anymore. They will utilize technology as well to complete an audit and the relating costs should be covered by the clients.

Technology is currently changing the profession, making it possible for machines to perform tasks with more reliance and speed than humans could. They will even perform tasks that humans wouldn’t be able to do. The collaboration between people and machines can improve the profession: technology can take over the monotonous jobs while people can put more emphasis on assessing the results and making decisions.

Sources:
Forbes Insights (2017) Audit 2025 – The future is now. Available at: https://i.forbesimg.com/forbesinsights/kpmg_audit2025/KPMG_Audit_2025pdf Accessed: 20/11/2020
International Standard on Auditing 200 – Overall objectives of the independent auditor and the conduct of an audit in accordance with International Standards on Auditing. Available at: https://www.ifac.org/system/files/downloads/a008-2010-iaasb-handbook-isa-200.pdf Accessed: 20/11/2020
PwC (2017) Confidence in the future – Human and machine collaboration in the audit. Available at: https://www.pwc.co.uk/audit-assurance/assets/pdf/confidence-in-the-future-human-machine-collaboration.pdf Accessed: 20/11/2020
The Institute of Chartered Accountants in England and Wales (2018) Understanding the impact of technology in audit and finance. Available at: https://www.icaew.com/-/media/corporate/files/middle-east-hub/understanding-the-impact-of-technology-in-audit-and-finance.ashx Accessed: 20/11/2020