5 January 2021: Training and skillsets have topped the list of concerns of respondents to an FRC consultation on the use of technology to enhance audit quality, as the regulator outlines its strategy to address the impact of the growing use of IT on its guidance and future standards.

A clear theme arising from the responses received – mainly from audit firms and professional bodies – was that the increasing use of technology including Artificial Intelligence (AI) and Machine Learning (ML) could enhance quality, provided that the technology is used at the right time, in the right place, and by individuals who are appropriately trained to use such tools.

However, the response highlights a number of issues, including the challenges of handling large numbers of exceptions in data analysis procedures and the difficulties of documenting AI and ML-based evidence. Respondents also warned of significant challenges in accessing high-quality client data in a reliable and consistent format.

David Lyford-Smith, Technical Manager in ICAEW’s Tech Faculty, said the theme of recruiting staff with the right skills and developing appropriate training for both trainees and experienced staff had emerged as a priority. “ICAEW is already moving exams to completely computer-based assessments and a partnership with Inflo means we include data analytics examples in questions. Understanding of data and bias is also part of this and we’ve been beefing up these parts of the syllabus.”

In its response, the FRC said its role in professional qualifications is limited to reviewing the Recognised Qualifying Bodies’ (RQBs) audit qualification syllabuses. “We will make suggestions for improvements where necessary, but we encourage users of this training to discuss any issues they feel are not addressed directly with providers to help ensure future auditors are properly equipped for the modern realities of audit,” the FRC commented.

The overwhelming majority of respondents supported the idea of a data standard to increase data quality and facilitate the transfer of data between auditors and companies. Many also saw a common data standard as providing a ‘backbone’ on which to develop and build new technologies. 

Lyford-Smith agreed that common ways of accessing client data would make things easier for both clients and auditors, but warned it was a huge undertaking. “It is clear that people see value in a standard that encompasses other countries and other forms of professional data but that is no small ask.”

Further clarification was also needed on data retention requirements, as firms looked for guidance on meeting both data protection considerations and regulatory requirements, Lyford-Smith said.

Although respondents agreed that additional guidance would be beneficial, the consensus is that the current assurance model and audit standards do not represent a significant impediment to the development and use of technology in audit. 

“There’s absolutely an opportunity here to enhance audit quality,” Lyford-Smith said. “This isn’t just about cutting costs and cutting corners but it’s absolutely not a given, and it does have to be approached with attention and thought and there are still some big questions to be resolved.”

Read the FRC’s response in full here.