Walking the regulatory tight rope: How to deliver a higher quality audit

There is a technological revolution occurring across financial and professional services that, coupled with changing consumer expectation and behaviour, creates an opportunity to drive a step change in the quality and effectiveness of the audit practice.

Audit is under pressure

Recent high-profile commercial failures have only increased scrutiny on a market that has long been suspected of promoting self-interest and lacking the care and attention necessary to offer true due diligence.

Earlier this year the CMA reiterated its view that the Big Four accounting firms should split their audit and consulting divisions and perform joint audits with those outside the Big Four in order to improve outcomes. We also eagerly await the outputs of the Brydon Review into the quality and effectiveness of audit which is due in January 2020.

There’s no doubt that technology will have a fundamental impact on the Accounting profession and in particular the audit function. Auditors spend many hours of their client engagements extracting data and verifying ERP transactions with accounting evidence.

The key areas we see technology impacting the audit are:

  1. Automating existing data-related audit tasks – such as extracting and normalising data, mapping, tagging and other data preparation activities. This would allow far more time for detailed analysis of problem areas and general auditing.
  2. Use of AI and machine learning to improve audit coverage and quality – traditional audit practice relies on sampling as there is simply too much data to verify every transaction line by line. Technology can handle most of the heavy lifting of verifying transactions at scale, again freeing resource to concentrate on anomalies and other audit tasks.

And yet, the Accounting profession lags behind other industries in terms of technology spend (Deloitte: 3.3% vs 7.16% for banks and 5.28% for other professional firms), perceiving it as disruptive, costly and accompanied with lengthy implementation timelines.

Automated 3rd party verification – a sea-change for Audit

In a timely and exciting development for the audit market the process of extracting data and performing verification against 3rd party bank data can be almost fully automated to free up valuable resource to focus on other audit tasks.

So what does this mean?

Technology can be utilized to move away from sampling of transactions and identify trends in the data. Powerful AI verification engines can now match business accounting income statement data with verified bank data to ensure all transactions are evidenced (see below for example workflow).

The production of verification workpapers, that summarize the matching exercise for auditors, frees up vast amounts of manual hours of data preparation and review but also gives the auditor more time to improve the quality of the audit through data / risk analysis.

In particular, the auditor benefits from:

  • 100% coverage – Verification Workpapers provides a disposition on whether or not bank statement evidence exists for every single transaction in the client’s ERP system.
  • Evidence based audit – Verification Engine walks through every single transaction in the GL to make a determination whether or not evidence exists on a bank statement.
  • Immediate visibility – With a few clicks, auditors have access to detailed lists of transactions without evidence and can assess next steps.
  • Quality – A quantum leap in audit quality. Allows for continuous auditing.

There is no doubt that the audit market will continue to face challenges and technology adoption will become an essential focus for Accounting firms as they look to ensure the necessary step change in audit quality and effectiveness.  Validis is poised to help your firm meet those technology challenges and continue to provide your clients with the highest level of service.

To find out more about Verification Workpapers for Audit visit the solution overview page, or email inforequest@validis.com

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