The Future of Audit: How Audit Technology is Redefining the Landscape
In the ever-evolving landscape of business and finance, the audit profession stands as a cornerstone of trust and integrity. The auditor’s professional skepticism helps ensure accurate and reliable financial reporting which leads to stable debt and capital markets. But just like every other industry, auditing isn’t immune to the rapid changes brought about by technological innovation. The future of audit will include audit technology, so how should auditors approach new tools to ensure audit integrity remains intact?
In my time in audit at EY and speaking with audit teams every week now, I’ve seen firsthand how the audit profession operates heavily with the “this is how we’ve always done it” mindset. While this sort of approach may have worked in the past, as the profession faces staffing shortages, increased competition, and heightened regulations and scrutiny, it’s no longer a way of thinking that can be sustained. Auditors must embrace new technologies, but we must do it with the professional skepticism we’re known for.
The rewards for adopting technology will be many: happier clients, more fulfilled and satisfied team members that stay in the profession longer, and improved accuracy, insights, and precision in audits.
Challenges and Opportunities in Audit Technology
While technology offers a plethora of advantages, it’s not without its challenges. We experience technology skeptics all the time in firm leadership – and it’s understandable. Data breaches and cybersecurity along with high costs and low adoption are indeed good causes for concern. However, firms that fail to embrace the digital revolution happening in audit run the risk of being left behind, and it can be difficult to see a bright, growing future for firms that ignore the opportunities that technology provides.
But software can give audit teams the ability to do things that are not possible in more manual audit. For example, collecting 100% of the transactions in the client’s general ledger, auditors can be more effective performing risk assessments, designing better procedures, and investigating anomalies that could easily be overlooked with mere sampling. Technology can eliminate constraints in engagements, freeing audit teams to do more with more with less while also gaining time and efficiency in their workloads.
To overcome challenges and take advantage of opportunities, audit leadership must think about technology differently. This isn’t a matter of if, it’s a matter of when. And it’s ok to start slow, as long as you are making progress towards enabling your team to do their jobs more effectively, generating positive client interactions and creating a firm your team loves to be a part of. If leadership focuses on incremental progress, the rewards to reap are great.
Eyes on the Digital Future of Audit
In today’s multifaceted business environment, the function of auditors grows paramount to preserving the precision and trustworthiness of financial statements. Auditors, therefore, must unequivocally stay informed of evolving technologies in order to deliver unparalleled service and audit quality to their clients. Technology has become so integral to the profession that the AICPA Auditing Standards Board recently released a new practice aid for tech-enabled audits, cementing the crucial role technology must play to ensure credible and effective audits.
Technology’s constant advancement is shifting the audit landscape, challenging traditional notions of the auditing process. The age of manual analytics has passed – and a technological shift is no longer looming. It’s happening. And for good reason.
As auditors, we are a disruption to our clients day-to-day. Our clients are busy trying to run their complex businesses and working through their own deadlines. Then we walk in asking them to stop whatever they are doing so to give us more information – information that they know we’re going to be reviewing with a fine-tooth comb trying to prove they did their work correctly – or simply pepper them with questions. It’s an uncomfortable relationship most of the time – one that both sides dislike.
We’ve accepted this dislike, however, as a necessary evil. It’s our jobs as auditors to approach our work with professional skepticism. If there are material mistakes, the responsibility is on our shoulders to find them and make sure they are corrected. This is how investors, markets, and stakeholders know they can rely on the financial statements businesses present. This messy process is how integrity is maintained.
The conventional image of auditing might bring to mind a team tucked away in the back room of a client’s office, hidden behind stacks of papers and their colored pencils for marking up workpapers . It’s certainly what I looked like 10 years ago. However, that portrayal has been replaced by digital platforms, cloud-based accounting systems, remote work/audits, and file-sharing software. Paper documents have been replaced by PDFs. The work complexity has increased, but the deadlines remain the same.
Technology is the only way forward for audit practices. But the future of audit is not just about automating manual processes and digitizing audit evidence. For the technology to work effectively, teams must shift their mindset. They must move beyond the “this is how it’s always been done” mentality and strive to eliminate the inherent, contentious relationship with clients. It’s a fundamental cultural shift that has to happen in order for practices to realize the full benefits that technology can bring. Auditors must force themselves to really think about how technology can be used to plan, execute, and perfect our audits.
After helping audit teams, large and small, across the country embrace audit technology, here are the things I see the most successful teams do to ensure success of the new tools and the future of audits at their firm:
Understand the problem you’re solving for with the new technology.
You can’t focus on everything at once. Rather, choose one or two areas to improve with technology each year. Take a look at your entire audit process and ask yourself and your team questions like what parts of your audits are challenging, time-consuming, redundant, or require excessive manual data manipulation. Involve your team heavily in this examination. The legs on the ground will offer far more insight than the leaders who haven’t done the manual work in years.
Also look at where your audits might be exposed to unnecessary risk, like where you might be using outdated techniques or sampling. Solving these issues in tech-centric audits empowers your team to scrutinize entire datasets, highlighting and addressing test risks, yielding richer, comprehensive insights. With technology handling the audit’s mundane aspects, auditors are freed to focus on and convey additional insights to their clients.
Views (and communicates) technology as an enabler for their team, not a way to replace staff.
With the significant staffing shortages today, it’s unlikely that audit leaders are looking to replace professionals with technology in the short-term. That said, it’s not an uncommon view for leaders that technology will enable them to reduce operating costs with fewer staff.
The teams we’ve worked with who have the most effective technology adoption across staff and realize the best results are those who have leaders preaching to the practice that the future of their firm is the tech-enabled professional, not the technology itself.
The intrinsic human skills of assessment, analysis, and discernment are indispensable in the audit process. Leveraging technology allows audit professionals to concentrate on these advanced skills, sidestepping the tedium of routine tasks. Appreciate that technology is in a state of persistent growth.
I see so many teams fall into this pitfall. They tried technology. They spent time and effort implementing a new tool and training their staffs. All this effort resulted in nothing but disappointment, grand promises underdelivered. As auditors, they then fall into the “fool me once, shame on you, fool me twice, shame on me” mindset. They resist all new tools because of the failures of those in the past.
Technology is ever changing, ever improving, and ever responding to feedback and advancements. It would be a mistake to assume that disappointments in the past will repeat themselves with every new piece of technology that comes along. Tools are getting better and better (and cheaper). Complicated ecosystems are being replaced by agile tools that work with the reliable tools your team already knows, like Excel.
Free trials and pilots allow you to try out a product before committing years and huge chunks of your budget. Learn from your past bad experiences but don’t let them keep you from the benefits you could be reaping from new advancements.
It's okay to take it slow.
If you’re unsure about a new piece of technology or your team is slow to adopt something you’ve invested in, start slowly. We are, after all, a skeptical bunch. Start with one audit – force your team to try out the tool on one project that’s fairly straight-forward. Let them get used to the idea of the new process that uses the software before they have to dive into a complicated case. As they get more comfortable using it and can experience the benefits it brings them first-hand, they’ll eventually be eager to use it on all their audits.
The mistake we see from some audit leaders is they resist technology unless it can (and will) be used on every single audit across the practice immediately. Even if you found a tool that meets those requirements, most software vendors will recommend you use a pilot group or phased approach anyway (said differently, 100% adoption on all audits day 1 is unlikely).
In our experience running pilots for audit teams with our product Strongbox, we do exactly that. And the most successful firms we have today are ones that started small and grew, vs. trying to solve for everything all at once.
The future of audit is undeniably intertwined with technology. As we stand on the brink of this new era (if we’re not already in the middle of it!), the auditing profession must embrace these tools, adapt to the challenges, and harness the opportunities they present. The end goal remains unchanged: to uphold the integrity and trustworthiness of financial statements. But with technology as an ally, the path to achieving that has become more dynamic and promising than ever before. It’s why I’m proud to be a part of audit’s technological future.
About the author:
Justin Pulgrano is the Chief Revenue Officer at Finagraph where he helps accounting and advisory firms grow their practices with technology, including Strongbox – a tool that incorporates automation into financial data collection and analysis.
Prior to joining Finagraph, Justin spent 8 years at Ernst & Young LLP leading M&A advisory and assurance teams, serving clients across various industries such as financial services, technology, professional services, and many others.
Justin is a CPA in the state of New York and earned his Master of Science in Accountancy from the University of Notre Dame. He lives in Seattle with his wife, Andi, and dog, Truman.