Reliable information has always been vital to decision making, as well as to investor confidence, in the business world. Executives leading these enterprises, as well as their auditors, must be prepared for an environment that is data-rich and technologically enabled.
Like so much in today’s business world, this new strand-data and analytics (D&A)-revolves around the indispensable use of technology, but just as important is the ability to connect and effectively use data. D&A enables auditors to harness the power of technology to arrive at greater rigor and precision and thus enhancing audit quality. The increased automation that D&A allows means that data can be processed much more quickly and across whole datasets. A company’s transactions, for example, can be analyzed virtually in their entirety and scrutinized at a more detailed level.
How Are Data and Analytics Used in the Audit?
Using D&A tools, we can start by analyzing the general ledger, running all the journal entries in the general ledger against accounting and audit rules and principles to assess the extent to which the contents of the ledger are in line with expectations or not.
D&A enables an auditor to work at greater levels of detail, which could result in better audit evidence. For example, with a company’s revenue or sales, the auditor can analyze not just the postings in their financial management system, but the underlying documentation itself, such as actual invoices and bank feeds. And rather than just sampling, say, a couple of hundred invoices, literally millions can be analyzed: an analysis of all transactions.
Disruptive events have called into question the reliability of assumptions in traditional forecasting and valuation models. Thus, while the examination of historical information is foundational, the ability to identify and assess future trends is becoming increasingly critical. This is important because if a company is overestimating future prospects, it could lead to an impairment or write-down further down the line-something that could hit its share price, cut the value of investors’ holdings and damage market confidence.
In the near future, auditors will use leading technology applications to systematically analyze structured and unstructured data using text mining, semantic analysis, and similar techniques. Looking a little further ahead, they are also likely to use ‘cognitive technology’ (or artificial intelligence) to fine-tune assumptions and give a better sense of what the future may bring.
The use of cognitive technologies and machine learning, the development of process robotics-all of these are exciting areas that could have far-reaching potential for the audit.
The auditing profession must develop and deploy advanced technologies to harness this explosion of data and unleash the insights embedded within it to advance audit quality and provide a deeper understanding of business and financial reporting risks, processes, and controls.
A recent Forbes Insights survey found 58 percent of auditors and businesses believe technology will have the single biggest impact on the audit over the next three to five years. And by 2020, smart machines will be a top-five investment priority for more than 30 percent of chief information officers.
As businesses transform their operations to become more digital, and perhaps more global, many will be overhauling their IT systems with more sophisticated technologies. As a result, audit professionals must embrace the use of advanced tools such as data and analytics (D&A), RPA, automation, and cognitive intelligence to manage processes, support planning and inform their decision-making.
Auditors will need to continue to develop innovative capabilities and technologies to maintain audit quality and strengthen the relevance of their audits into the future.
Cognitive technology allows auditors to obtain and analyze information from nontraditional sources, including social media sites, TV, radio and the Internet, and determine if any of this external information may impact an audit either directly or indirectly.
In combination with visualization tools, cognitive technology can bring audit information to life through automated charting and graphics that allow for a greater understanding of what’s been discovered and promote timely and calibrated responses. For instance, these tools can provide clear illustrations of account relationships and transaction flows as well as anomalies in the data, both of which can offer a wealth of insights about a company’s controls, processes, and performance.
Cognitive technology will enhance the ability of auditors to:
Cognitive technology (also frequently referred to as cognitive automation or artificial intelligence) essentially is an algorithm or chain of algorithms that enable the software to absorb information, reason and think in ways similar to human beings. When combined with advances in digital and process automation, and data and analytics, cognitive technology can have a profound impact across a broad spectrum of working environments and occupations.
While cognitive and data and analytics are different, they work together to generate greater analytic depth, broader perspectives, and more effective decision-making. This combination of capabilities is essentially a force multiplier that can increase the level of detail and accuracy of audit processes, which in turn, enables auditors to sharpen their focus on higher-value audit activities and helps them deliver more insightful and effective audits.
In this environment, teams of professionals must possess more than just an understanding of accounting and auditing-they need stronger critical thinking, analytical, data science, and IT skills to complement their financial and business acumen. The profession will need to continue to work with universities, regulators and leading technology companies to enhance the skill sets of its people and develop new capabilities to advance audit quality.