Digitization has made a powerful impact on a number of professional service fields, including audit processes. This is why we can currently observe market leaders, such as PwC and Ernst & Young, working actively on applying a new technological angle to their auditing and data processing—from advanced data analytics tools to robust digital platforms.
While digitization allows for injecting more accuracy into risk assessment and reveals multiple competitive advantages, planning audit innovation can be more intricate than meets the eye. To illuminate the specifics and clarify the whys and hows of enabling enterprise audit technology, we compiled our subject-matter experts' insights and exclusive experience gained from working with Big Four clients within this comprehensive guide.
Audit innovation: faster, smarter, stronger
For many sectors and industries, innovation adoption is more than a demand that comes from the inside, i.e., from the departments and employees. It's the expectation from the clients.
Around 32% of audit firm clients admitted they would change their auditor if another firm is equipped with better technology.
The reason for such preference is dictated by the client's demand for faster audits, real-time analysis, and improved risk forecasting. Auditor firms that manage to meet such a demand gain more than growth and an expanded customer base—they gain an opportunity to influence audit standards and approaches on a global scale. By being the first to introduce a new approach and extend it to audiences beyond their region, early adopters become able to set new trends, shaping audit innovation.
Given such developments, audit firms and financial enterprises are becoming more attentive to digital technology capabilities and their ability to provide competitive leverage.
Dynamic risk assessment
Timely risk and response to unexpected events with the help of predictive analytics.
Business trust generation
Delivering detailed, accurate, and in-depth audits for business partners and government authorities.
Enhanced reporting process
Faster generation of conclusive reports that suggest the most appropriate action plan with all details included.
Better collaboration between data officers within the enterprise due to more flexible and inclusive cooperation features.
In their pursuit of opportunities, audit firms and companies are more likely to go from cautiousness to experimenting with innovation, dipping into new approaches, and figuring out the most appropriate strategies for audit transformation.
Key areas of audit technology
1) Data analytics
Data analysis has always been an integral part of audit. However, the matter of how fast the data is gathered, verified, and aggregated became increasingly important in the ever-shifting financial and audit reporting landscape, requiring more focus on two vast categories of data: large transactional data and big data.
In the case of large transactional data, modern audit technology provides new algorithms and testing methods—which is exactly what auditors need, considering the ongoing trend of developing standardized and centralized financial reporting systems and implementation of cloud software for storing and sharing data.
Meanwhile, big data is a rather large domain with a wide range of applications. In the case of audits, this type of data becomes highly valuable for trend analysis, risk assessment, and evaluation of customer relationships. Processing big data through hand-managed means and obsolete solutions often becomes a reason for setbacks and impacts the quality of decision-making. Accordingly, auditors rely on innovation adoption to equip themselves with the tools for harvesting knowledge from numerous data systems.
Injecting 360-degree clarity into business relationship analysis with a custom MDM platform
Aside from improving the efficiency and accuracy of processing different types of data, there is another area for improvement that audit technology allows to cover: the shortage of data analytics experts.
The demand for such talents has been rising since 2016, and by 2022, around 63% of companies remain concerned about lacking the professionals to work with the data they generate. Such an issue is particularly sensitive to audit firms which rely on the quality and the accuracy of data. Data analytics tools become an efficient solution to the challenge, reducing the number of experts involved in the process and delivering more insights within a relatively shorter period.
2) Artificial intelligence (AI)
While the application of artificial intelligence in audit innovation is currently still in its experimental phase, the results are quite promising. Audits benefit from AI technology like all manually managed processes: they get accelerated and enhanced. The use of AI algorithms minimizes human error, enables the identification of high-risk transactions, and scales the volume of performed audits to the 99.9% degree of the entire data set, potentially maximizing the return on every cent invested in innovation adoption.
Speaking about the applications of AI for audit technology, there are two promising directions:
Accounting standards monitoring
Improving standard compliance monitoring, providing smart notifications, and running compliance checks for the specific area.
Assistance for auditors
Offering new opportunities for audit support and guidance, providing tips, templates, and instant access to necessary data, accelerating operations without sacrificing quality.
The reason why artificial intelligence, despite its benefits, still remains in its trial stage is that the quality of the AI is directly correlated to the quality of data. Relevance, lack of bias, and obsolete information are detrimental to successful and productive innovation adoption—which is why enterprises must secure flawless data approach and hygiene before committing to exploring the potential of AI.
Having rooted its presence firmly in the BFSI sector, blockchain technology is now also making a difference in audit innovation. While the application cases remain mostly experimental, the technology's resistance to modification and data tweaking opens the door to numerous possibilities for improving audit quality.
Faster transaction verification
Creating immutable transaction records that can be easily verified and processed without interacting with third parties, reducing the estimated time of financial transaction clearance from months to hours, and enabling a more dynamic and cost-effective audit environment.
Allowing auditors to go from performing year-end assessments to continuous assessments throughout the entire audit period without investing too much time and resources (compared to traditional continuous assessment).
Despite its potential, blockchain technology still has challenges to overcome before becoming an integral part of auditing. Most of these challenges are still connected to the absence of a regulation system that establishes compensation for losses, outlines responsibilities, and reconciles blockchain's most attractive qualities (transparency and data traceability) with the legal aspect of business relationships.
Additionally, while decentralized data storage provides extra security, the fallibility of the supporting software still creates opportunities for hackers, which requires tight data protection policies and IT controls before implementing blockchain-powered audit technology.
It’s important to remember that any audit tech isn't just a miracle tool or a ready-made product. It's a comprehensive ecosystem that can consist of a wide range of elements. So, before building such an ecosystem, technology leaders need to ensure they have the right idea of their direction and the results they expect to gain.
Audit innovation: choosing the right mindset for the journey
The stumbling block of any innovation adoption can become the limited understanding of scale. Therefore, the process of developing and implementing audit technology must be preceded by a thorough identification of goals and objectives that need to be covered—and the full awareness of pitfalls that can appear.
First and foremost, audit innovation is a resource-intensive endeavor. Implementing audit tech and incorporating it into the enterprise in full accordance with the client's needs is a massive work that requires a large amount of human resources, budget, and time.
Audit technology is efficient when it can fulfill very specific audit objectives and needs, as well as fit the size of the enterprise. Replicating a solution made by Big Four leaders is not always the guarantee of success—more likely it will lead to financial loss and a waste of time and resources without any real return on investment (ROI).
For that reason, approaching innovation adoption with the "I want what X has" mindset isn't the best way to improve. So, decision-makers with plans on innovating their approach to audits need to be very specific about the areas they want to focus on—sometimes, improving only a specific part of the process (data analysis or document processing) would allow them to do more with less. Additionally, they should expand their vision of the future by embracing the practice of continuous delivery through the latest technology and innovation approach.
The truth is that innovation adoption is a never-ending story for audit industry leaders—the product will always reveal new areas for improvement to address. Acknowledging that truth will facilitate product development planning and add more clarity to budget allocation.
The planning doesn’t end there. According to chief audit executives who have already proceeded with adopting audit tech, audit transformation requires thinking and planning many steps ahead. Instead of looking to the next corner, decision-makers need to look to the next three corners to understand how audit technology will help them accomplish their goals and deliver value.
A long-term ambition also provides a better understanding of opportunities that can be maximized and constraints that can be bypassed. So, the best results and most impactful audit technology solutions are designed when the client has a certain tech or product direction for a specific business area.
Finding audit innovation partners: qualities and priorities
Audit transformation is a taxing process in more ways than one: in addition to the sheer volume of work, technology leaders need a large number of experts with specific skills and experience. Since such experts are usually provided by a technology partner, it’s crucial for business leaders to have a clear list of priorities regarding their potential partnerships.
Product owner-level expertise
The complexity of audit technology calls for an in-depth approach and understanding of the processes as well as uninterrupted back-and-forth communication. To achieve this, decision-makers should ensure that their tech partner team can participate in product realization on a product owner level i.e., have a clear perspective on the client’s goals and long-term business objectives. It is also important to build synergy between all teams involved in product realization and be proactive when they identify the opportunity for maximizing the solution’s value.
For example, in our work on a Big Four client’s project, our experts saw the potential for going beyond scaling the client’s tool to global customers via replacing multiple tools with a universal and versatile mechanism that managed region-sensitive data, covering all area-specific business needs.
Our team acted upon this vision by providing the client with a prototype with improved auditor journeys and routines, making a long-lasting positive impact on the enterprise and its relationships. Since the tool’s functionality and capabilities fully aligned with the company’s growth plans and aspirations, they proceeded to development and integration, gaining an exclusive and competitive solution.
Setting the new bar for business accounting globally through strategic audit transformation
Resistance to pressure
In addition to approaching the realization of audit tech as product owners, partner teams must be prepared to operate in an intense, deadline-driven environment. Compared to other sectors, auditing is connected to seasonality; therefore, there is no tolerance for delays and setbacks during development. The partner teams must be prepared to move along each milestone, troubleshoot, and perform testing at a very dynamic pace.
What can add to the pressure is the necessity to change and adapt rapidly and flexibly, keeping up the momentum without sacrificing efficiency.
In one case, our audit transformation teams had to expand from one team-one product approach to a SAFe multi-team approach with great focus on the Agile Train Release (ART) part of the framework, so we could deliver the product while staying on schedule.
As a result, in a relatively short time, we went from managing a 10-member team to operating 70 experts without slowing down our progress and introducing new techniques on the fly. Our shift was successful due to the flexible mindset shared between all the professionals in the team—the change in strategy is always expected and prepared for accordingly.
Familiarity with data architecture
As a rule, during audit transformation, the partner team works according to the client's data policies, infrastructure, and governance. Therefore, the chosen partners must be skilled at working with the tools, cloud service providers, technology, and architecture standards supported by the client’s company digital infrastructure.
To secure this, technology leaders need to ensure smooth, back-and-forth communication between the company’s data architects and audit transformation partner teams. Such a measure will prevent unwelcome delays and allow the teams to timely inform the client about what they require for successful project completion, consult them on using tools and services, and also dodge potential compliance issues.
Compliance is one of the most important elements of our work with clients. On our side, we make sure that the audit technology we develop is fully in line with the licenses and legal approaches practiced by the client’s organization. For that reason, our work always includes consulting with their internal data architects.
How to identify the right audit technology realization team?
Nothing about audit innovation is simple, including finding and identifying proper technology partners. However, there is a certain way to cut through the abundance of options and gain a shortcut to the best ones.
When looking for audit innovation partners, stakeholders should be paying attention to professionals willing to walk the extra mile if it means delivering better results. Such experts always do more than follow the blueprint, looking deeper into the product’s overall trajectory and evaluating its functionality in the future. Accordingly, creativity and readiness for continuous improvement should be the first telltale signs of a technology partner capable of handling the volume and intensity of audit transformation.
So, if you’re currently planning your audit innovation and need technological assistance and product realization consulting, let’s chat.
As the preferred partner of a Big Four leader, we made audit transformation one of our strongest focus areas and are dedicated to sharing our insights with business and tech leaders who have audit innovation adoption on their minds. Having enabled scalability and efficiency for multiple enterprises across the globe, our vetted experts can do more than develop a product. With their product realization skills, you’ll be able to reimagine your enterprise routines and unlock continuous product scaling, securing your competitive advantage.