Welcome to the era of the digital audit
By Evan DeFord, CPA
Maturing data technologies combined with automation and cloud computing are driving momentum in the digitalization of the audit function and delivering benefits both to clients and auditors.
While technology has been a transformational catalyst for the business world, the auditing process has lagged.
In areas outside of auditing, accounting firms have been rapid adopters of innovation, driven by technologies such as cloud and more recently artificial intelligence, machine learning and robotic process automation.
Many of their enterprise clients have been through their own digital transformations, in many cases accelerated by the pandemic lockdowns.
Some of these clients are also digital native enterprises born in the cloud and using innovative new business models.
Auditing, meanwhile, has been somewhat stubborn in its resistance to change, and there is even a variation of an old joke which describes this well.
Why did the auditor cross the road? Because that’s what they did last year.
There is a confluence of reasons why auditing has been slow to embrace change, and one explanation lies in the traditional career progression in accounting firms.
Those at the top of the pyramid are people who have ascended to seniority over long careers.
While they may have deep experience and knowledge, this traditional structure can often be a choke point for innovation, particularly when it comes to new technologies.
Because the way things are always done produced a good result last year, many see no reason why this year’s audit should be done differently.
Catalysts for Change
Such is the pace of technology adoption, however, that the momentum for change is now catching up with auditing and we are finally entering the era of the digital audit.
One catalyst has been on the client side, as organizations have embraced digitalization with an expectation that everyone in their supply chain – even their auditors – need to have an advanced level of digital capability to interact.
Another catalyst has been the improving performance of data solutions in a cloud environment, which have enabled unprecedented levels of data sharing, aggregation and analysis.
Cloud adoption, perhaps more than anything, has consigned the use of paper in audits to the trash.
It has created one secure place in the cloud, accessible by both auditor and client, where financial data can be taken out of silos and stored, exchanged and analyzed.
Evolving cultural change within accounting firms has added to the momentum as accountants increasingly see technology as their friend.
Bots are not necessarily rivals who will take their jobs, but as robot colleagues who can do the menial work and leave them to focus on adding insight and value to the client relationship.
Towards greater collaboration
So, what are the benefits of moving to a digital audit?
High quality audits based on sound and proven methodologies have been produced over many years using legacy processes, of that there is no doubt.
Where digital auditing adds value is in making the process easier, faster and collaborative between auditor and client.
Historically, there have been frustrations on both sides of the relationship, which has often been contentious.
For auditors, difficulties in obtaining critical information from clients is sometimes perceived as reluctance, while clients can see working with auditors as a burden which takes them away from their day-to-day work.
The digital auditing approach is an opportunity for the auditor to more easily ingest client produced data and then share the results of the analysis through the cloud, making the process more transparent to both sides.
From this greater efficiency comes the opportunity to focus on the highest and best use, as the as the reduction in the number of menial tasks gives the auditor the opportunity to add value and become a trusted business advisor rather than a perfunctory service provider.
Client revenues may be up, for example, and the traditional answer may be a simple explanation that more products have been sold, but a deeper dive into better prepared data may show more, and this information can be extremely valuable.
Perhaps there was a new product launched, or a significant new customer who might have previously been unknown to the audit team.
Digital tools can help the auditor see this more clearly, and this can spark a much more meaningful conversation with the client and potentially open new service lines for the accountant.
It can certainly accelerate the professional development of younger accountants, elevate their role through replacing traditional work with automation and have a positive cultural impact within the firm.
Driven by data
The word audit comes from the Latin saying, to hear or to listen. Digital auditing enables the accountant to better listen to the data, use it to the fullest and give them the opportunity to exercise more critical thinking and professional judgement.
The firm I work for, Inflo, is a technology provider offering cloud based digital solutions for auditing.
Our solutions are no black box, because we understand that every decision in an audit process needs to be visible, and potentially reperformed for regulators or even in a court of law. Inflo’s processes are transparent and designed to rigorously comply with auditing standards.
We have our own clear methodology around audit, based on the deep experience of our people, but our system is flexible and enables firms to use their own methodologies, while still taking advantage of our data ingestion, sharing, and data analytics.
Inflo takes auditing further into the world of digitalization than it has ever gone before, sitting in the cloud between auditor and client and driving new efficiencies in one of the most important processes in accounting.
As part of the Inflo leadership team, Evan specializes in educating client firms and their teams about deploying Inflo in real-world accounting scenarios.
Evan brings over 10 years of accounting and auditing experience with emphasis in audit data and audit risk. Beyond being a former practitioner, he has held past roles at the National Office level, was on the task force for the AICPA Audit Data Analytics Guide and on the Board of Examiners for the CPA exam. This experience provides him with the relevant context to ensure Inflo is aligned with auditing standards, firm methodologies and the skills CPAs require in the future.
Want to hear more from Evan? Then join him on Thursday, September 23 for the Inflo and BDO Live Webcast: Getting ready to adopt Digital Audit technology. During this session, you’ll discover best practices for technology adoption and implementation for your firm.