Wednesday, August 19, 2015

Audit Method: Future of Audit. Technology.

The spaceship of an auditor from Earth landed on the green field of the planet Kepler-3571c. The auditor had a task to participate in a stock take of flying horses herd.
This is not another story from Airstrip One rubric. The purpose of this article is to discuss future application of technology in audit, but not as far as in the above introduction.

Survey
The reason for this post was the report “Audit 2020: A Focus on Change” issued by Forbes and KPMG on changes required in in audit services and profession [1]. The reports identifies number of directions in which audit should evolve: technology, culture and regulations, skills, quality and nature of services.

Technology captured might interest. 58% of respondents say that technology has the biggest impact on audit profession according to report. The technology implementation as mentioned in report is expected to impact audit process in following ways (top three are mentioned):
  1. Provide tools for more sophisticated analysis;
  2. Provide more efficiency;
  3. Flag issues that require deeper investigation.
Current situation
The Big 4 audit firms have already taken measures to address challenges of new IT era. All big audit firms have own departments specialising on IT audit and data analysis. The expansions into the IT and related areas is not only organic, but also by means of acquisitions: KPMG purchased innovative HR firm [2], EY purchased a digital design consultancy [3] in 2015; PwC purchased IT consulting firm earlier in 2012 [4].

Nowadays it is common for auditors to use data analysis software to perform journal entries testing. This is because the complex software is needed to analyse large missives of journal entries downloaded from client’s accounting system. CAAT (Computer assisted audit technique) has become a buzz word in audit text books and instructions.

Auditor’s Future
I think it is time for another step forward in the area IT implementation. Audit firms should consider in which audit procedures audit software might totally replace human auditors. There are some shy thoughts regarding this idea in the report discussing that “audit should become continuous and ongoing to provide real-time analysis” [1]. The way this could be realised is by deploying into client IT system the independent software with the rights of ongoing check what has been entered into the system and do checks following algorithm written my human.

Potentially some procedures could be performed by robot-auditor even with current level of IT development in the world. For example, the procedure of invoice vouching could be done by robot. Robot might have questions and  at this point human auditor might interfere.

The replacement of human auditors by robots should be discussed openly to develop new skills required for future audit profession. A report by Deloitte with the University of Oxford predicts that the robot revolution will displace almost 35% of UK jobs [5] and the audit profession should be ready for these changes.  


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