Participants included representatives from a number of audit firms, the ICAEW - in the guise of the newly appointed Head of Data Analytics and Tech, Ian Pay - and me, representing a software vendor in the audit analytics space. The following article acts as a reflection on the points discussed.
Audit quality is under increasing scrutiny, and while there are concerns about the timelines for and nature of impending audit reforms, they were nonetheless present in the 2022 Queen’s Speech. While analytics are not the only answer to the challenge of audit quality, they can play a crucial role. By being able to analyse 100% of transactions, auditors are able to spend time focusing on the outliers, investigating the transactions that merit attention, rather than a selected sample that invariably misses the mark. Analytics tools also help to improve quality by removing the risk of human error which, with the best processes and controls in the world, can still cause significant audit challenges. Running a set of data through a robust analytics tool will produce the same results time after time, while the same cannot necessarily be said of more human-led processes. With the introduction of AI and machine learning capabilities, the results from the computer won’t simply be the same - they’ll get better.
Audit analytics allow auditors to deliver engagements more efficiently, through performing repeatable tasks in a more automated way. In this way, audit analytics isn’t just about changing the approach to auditing with new techniques, but about taking the existing approach and streamlining it. For example, rather than manually comparing two invoice listings from different sources which could take hours, analytics tools can be used to automate the comparison in a matter of seconds.
Modern ways of working
The data driven approach of analytics means employees are more engaged and are moving higher up the value chain, away from “ticking and bashing”. Under this new way of working, the importance of communication and soft skills are heightened - far from “computers stealing our jobs”, they actually allow audit staff and partners to focus on what they do best - talking to clients. With a tech enabled audit, firms that are staffed with individuals who can communicate effectively with clients will thrive.
Winning (and keeping) business
Showcasing analytics tools in audit proposals can help firms win new clients by demonstrating that they will deliver an efficient and insightful audit. But it can’t just be tech for tech’s sake - the tools demonstrated need to have relevance to prospective clients, and deliver tangible benefits to them. So being able to explain what the tools will deliver back to the client by way of insights is important. Insights from data driven audits provide a lot of value to clients that in many cases lack the resources and/or knowhow to be able to generate these themselves. There is also the holy grail of audit analytics - benchmarking (anonymised, of course) - which many clients crave but have limited ability to deliver on without the engagement of trusted advisors aka auditors.
Analytics can help with retention too, particularly in the current market. By embedding your tools with a client, they become comfortable with that firm’s technology ecosystem, which can lead to sticker and more profitable engagements.
The Challenges (and how to solve them)
Given that data analytics is a relatively new discipline, there is a general lack of skills in the profession. There are steps that the ICAEW is taking, through changes to the ACA and the Data Analytics Certificate Programme, to help address this. According to Ian Pay, “The programme is designed to help finance professionals unleash deep insights from data.” But he also notes that “there is still plenty more work to be done to ensure all chartered accountants have a solid grounding in a core set of digital and analytical skills.” There is a need for audit firms to be proactive in recognising the skills gap within their own teams and working with ICAEW and other organisations to help plug it.
One of the biggest challenges to the adoption of audit analytics identified during the roundtable was audit methodology. Presently it’s challenging to identify what analytics can replace from a traditional audit file or where it fits in - what coverage it delivers, and what audit assertions it can support. With the technology enabling analytics continuously evolving, there is a lack of guidance or generally recognised methods, and a struggle for methodology providers to keep up with the pace of change.
“There’s lots happening in tech. We need auditors, software providers, methodology providers and regulators (including ICAEW) to work together,” says Pay. “Our role at the ICAEW is to bring groups together and make sure we’re talking about the things people need us to talk about, and with our recent hire of a new Head of Tech Policy, we’re moving in the right direction.”
Cost is often a perceived challenge to audit analytics being adopted en masse. Some firms may be concerned about this upfront investment and not being able to pass this on to their clients through increased fees.
It is important to stress that, if implemented correctly, analytics should simply involve a rebalancing of costs and taking a more long-term perspective. The first year of implementing an analytics solution on an audit engagement can lead to additional costs, but in the second and subsequent years, costs should reduce substantially due to the efficiency of removing labour-intensive manual audit procedures. There is a need, fundamentally, to then move away from the traditional “time and materials” model of setting client fees, and towards one where fees comprise a combination of physical effort and recovery of technology costs.
Overwhelmed by Choice
The final challenge is, perhaps, a good one to have - one of choice. The software market for analytics tools is a very busy one, and Pay notes that many smaller firms struggle with not knowing what to choose, and the fear of going down a path which may become obsolete after a few years. The ICAEW has a role to play in helping practitioners and firms make suitable decisions based on their individual requirements, with the ICAEW Technology Accreditation and the hosting of events and webinars focussed on solution delivery playing an increasing part. Ultimately, firms need to take the plunge with tech and analytics, as the longer the decision is put off, the harder it becomes to catch up.
As highlighted in the ICAEW’s annual report, the importance of analytics are underlined by “mastering technology and data” being one of the five strategic themes for the decade ahead. At the roundtable, participants were encouraged by the ICAEW’s participation in the conversation.
The use of audit analytics presents opportunities and efficiencies for audit firms and will help modernise the profession. But this requires more than just talk - firms need to take action and start to own their journey into the world of audit analytics.
About the Author
Dudley is a member of the ICAEW Data Analytics Community an ICAEW Chartered Accountant and Auditor, formerly with KPMG and Moore Kingston Smith. His specialism is in audit analytics and technology. He is the VP of Business Development at Circit and previously founded Audapio, a tool that leverages Open Banking to improve audit quality and efficiency.