Audit firms no longer face any barriers to adopting Data Analytics

The IAASB’s recent Request for Input on their paper, “Exploring the growing of use of technology in the audit, with a focus on Data Analytics”, gave a thorough and frank assessment of the challenges the IAASB face as they consider how to incorporate Data Analytics into audit standards.

However, the IAASB’s summary of the challenges faced by audit firms attempting to adopt these techniques demonstrated how fast technology has developed across the profession in the last 12 months.

Data acquisition: The paper listed some of the key challenges to include data acquisition; how can audit firms tackle this tricky first step when faced with many clients working on all kinds of different accounting systems?

The challenge is very real, with a recent Inflo survey across over 2,000 audit clients finding over 300 unique accounting systems, many used by 2 or fewer clients. But solutions which specialise in this aspect of the task mean audit firms can now outsource this highly skilled area.

Specialist Resource: The IAASB paper also cites the availability of specialist resource, such as data scientists, as being a key barrier faced by audit firms. This assumes a model is required similar to that adopted by the Big 4 firms, where bespoke in-house software solutions require a large centralised support team to perform the extraction, validation and analysis process before passing outputs to the audit team.

Many issues, such as the disconnect between the analysis and the understand of the client, exist in such a structure and it is no longer the only model available. The data scientist role can be automated, allowing auditors to self-serve using intuitive user interfaces which highlight results for interpretation, also minimising the need to re-skill audit staff.

Investment Cost: While not specifically mentioned in the IAASB paper a number audit firms have highlighted in their responses the investment cost of developing such technology has meant only the largest firms have been able to commit to building such tools.

With little certainty over what can be achieved from a bespoke-built solution, firms have been unwilling and unable to invest in what has largely represented research and development. But subscription based solutions now allow audit firms to pilot Data Analytics on their real clients, without any up-front investment or long term commitment.

Conclusion

The road ahead for the IAASB’s standard setting mission is complex and will not be solved quickly. However, audit firms must begin the journey to embedding data and Data Analytics into their approach soon or risk their external audit service offering becoming obsolete in this quickly evolving market.

See Inflo’s full response letter to the IAASB Request for Input here.