The use of data analytics tools in the audit process is a key part of discussions about this important service line’s future. But its implementation is far less widespread than you may think – and this needs to change.
Firstly, what do these tools offer? Since auditing began, it has revolved around some form of substantive analytical review, testing of controls, and audit sampling. But the explosion of data and its accessibility – primarily through the cloud, alongside new interrogative tools – means that an auditor could conceivably check every transaction within a client’s books and records.
But, outside of the Big Four firms, there is still a lack of adoption of such tools and new techniques.
So, if the tech has advanced so far and we know data is more abundant – why hasn’t the audit profession fully embraced it as a tool? Why wouldn’t you look at all the data? I think there are a number of reasons.
Firstly, not every firm or network has the same budget and funding as the Big Four to invest in the tools and the training required.
Secondly, although the technology is there to assess client information, we haven’t been provided with any codification from the standard setters as to their use in relation to audit. Even if we can interrogate client data fully, would that qualify as a valid audit approach as far as the standard setters are concerned? They may take a different view.
But there’s also a third element: The human side of things. Culturally, auditors are risk- averse and conservative – they’re used to doing things the same way year after year. Suddenly they have the potential to do things completely differently – but it’s not really in our professional nature to take that opportunity and be creative or innovative.
All of these factors contribute to why we haven’t had wide scale adoption of audit analytics. How will that change?
The circumspection of firms means that some have the opportunity to be pioneers.
While some fear that data scientists will replace accountants, that’s not necessarily the case. They are good at manipulating information but aren’t trained to manage an audit. Bringing some in will help but they’re not 100% of the answer.
Firms should recognise that it’s a great opportunity to look at an external service provider for tools and support. They are increasingly providing training and online support and, importantly for accounting networks, these are being offered in different languages. This collaboration will manage data’s extraction and manipulation for audit teams to then analyse.
Finding someone externally, and the right type of service provider, is something which firms are increasingly turning their attention to.
There’s other evidence for momentum. The accounting institutes are looking to embed data analytics into their training. The ICAEW is working with Inflo to enable member firms to use technology resources to improve and evolve their service offerings. That will be great – the next generation of chartered accountants will be familiar with running data analytics.
And let’s not forget who we serve. Data analytics will be a part of improving the client experience. Helping us offer a more efficient, insightful and therefore value-added range of services. It’s an opportunity to have better and deeper conversations with clients as they digitalise their financial control environment.
We are launching our own network-wide ADA (advanced data analytics) framework – a reference guide to encourage our firms to start using data analytics. It’s not just about the tech, but changing mindsets and encouraging a culture of innovation and creativity within the audit team to try things out, which is as important as the tech itself.
It’s not just firms that need to progress – we also need the standard setters to change. They do recognise that things are moving on. Rather than rushing, they’re trying to future-proof individual standards with reference to how data analytics and other automated procedures are undertaken.
When we look at clients’ audit proposals there’s an expectation of the use of analytics. In a few years’ time data analytics will be standard across all firms. But there’s an opportunity for some to get ahead of the game.
Jamie Drummond is director of assurance for PKF International