Recently our CEO Mark Edmondson had the chance to interview Mark Babington, Deputy Director of Audit Policy of the Financial Reporting Council.
In their conversation they touch on some of the profession’s hottest technology-related topics, including how firms of all sizes can improve audit quality through the latest technology and what the audit team of the future will look like.
You can watch the in-depth interview above, and here’s a quick look at the highlights for a taste of what to expect:
Technology is the key to making sure the audit is fit for the future of business
The world of accounting is changing and pressure is on Financial Directors to provide more insight around their organisation’s finances.
Because of this, Mark explains forward-thinking firms aren’t changing their processes just because “auditors are coming in with a bit of kit and wanting to use it”.
Instead, change is coming from audited bodies. “It’s a reflection about a very different way in which business is being done”, Mark says. “How is management getting assurance that the information they’re generating is reliable? That they are achieving the objectives they’ve set out?”.
For Mark, “the business of today – and the business of tomorrow – is different, and auditors need to demonstrate they can respond to that.”
And to thrive alongside the businesses of tomorrow, auditors need to do more than just analyse last years’ finances and better anticipate what assurance over what information users will need.
Going further than just looking in the rear-view mirror
“If you speak to stakeholders now, everyone wants more assurance”, says Mark. “Not necessarily more assurance over the financial statements, because we already have a framework in place. But what about the other information that’s published alongside the financial statements? For example, would stakeholders want a higher level of assurance over viability statements in an annual report?”.
For Mark, “that’s when the ability to integrate data and better understand how business works and what the risks it’s managing are lends itself to the sort of audit that might not just be concerned with historical financial information.
“It’s about demonstrating that that audit is underpinned by a comprehensive understanding of risk drawn from real business insights. And in a sense that hasn’t changed – the audit has always had to be about that. But technology has given you an ability to synthesize that information on a scale that hasn’t existed before.”
Ultimately, he says “we’re looking not just at backward-looking historical information – we’re also looking forward”.
How to remove risk from getting started with the latest technology
Mark appreciates that transitioning to using new technology to perform your audit poses a risk. “The real challenge for any engagement partner is that it sits on your shoulders to develop an audit process and gather the evidence you need to be able to draw your conclusions”, he says. “So, when we talk to people who are taking on that role for entities of all different sizes, what they don’t want to do is be part-way through an audit and have something fail.
“I’m sure people are weighing up the risks and they’re saying ‘I could make better use of technology, but what happens if it doesn’t work? Is it better to stay with what we know?’”, he continues.
But as Mark has already discussed, the audit is changing, and firms need to change with it. So instead of standing still, he recommends that firms “think about ‘where are the areas where I can manage the risk of that transition most effectively and in doing so make the greatest contribution to audit quality?’. So that’s why I recommend things like how you select what you’re actually going to do, looking at journals, even demonstrating that you’ve used an ability to interrogate data to frame your risk assessment to give you a better understanding. Those are steps where the risk of something going wrong are much lower and so the benefit is there and the return in terms of quality is there as well.”
So, if you’re looking for a place to start implementing the latest data analytics software, Mark recommends that you identify a low-risk opportunity that will build confidence and familiarity in a new approach.
Watch the video above to take a deep dive into the conversation and get an insight into the viewpoint of a regulator.