Forward-looking audit approach increases enterprise value
Audits of company results will soon be performed in real time. What added value does this create for the audit client?
Traditional audit approaches focus on past financial periods and therefore tend to provide a backward-looking perspective of the financial position of the audited company. This way of doing things is currently being challenged by managers and stakeholders, as it often fails to provide a good basis for strategic decisions. A real-time audit or even a forward-looking audit can give management a better picture of a company’s risk factors and inform it of risky transactions in a more timely manner.
The barriers to adopting what is known as ‘continuous auditing’ are gradually becoming lower as both the necessary technology and skills become more widely available. We expect the transition to continuous auditing to gather pace in the coming years and replace the existing schedules for interim and annual audits.
In recent years, audit firms have invested heavily in cloud-based platforms that integrate seamlessly into the IT environments of clients and collect audit-related data automatically, allowing global audit teams to draw on a common source for their audit activities. On the one hand, this ensures a high level of data quality and consistency. On the other hand, it minimises the effort involved in analysing, coordinating and extracting data.
Technology facilitating a change of perspective
Distributed ledger technology (blockchain) offers a higher degree of integrity and eliminates the need for time-consuming audit activities. For example, smart contracts on a blockchain can perform typical contract validations automatically. However, technology is not everything. The processes at the audited company and the audit firm must also be adapted, and large amounts of data must be available in real time and in adequate quality. In particular, employees with the right skills are needed to process the collected data and correctly interpret the findings. Last but not least, the necessary IT infrastructure needs to be in place.
Once the principles of continuous auditing have been implemented, it paves the way for ‘predictive auditing’ (audits with a forward-looking perspective). By applying predictive analytics and artificial intelligence to data from both internal and external sources, it is possible to identify changes in the business environment or risky trends in advance, allowing management to respond promptly with the necessary measures.
There is a general consensus in the industry that technology alone cannot replace the judgement of a qualified auditor. In fact, qualified employees who can recognise, examine and explain complex issues in a comprehensible way are becoming more important than ever.
New demands on the profession
In order to meet these demands, both the profession itself and the typical competencies of auditors must be continuously developed. The first changes can already be observed in the current wave of graduates. Those leaving university with a business degree who choose a career in auditing and consulting are much better trained in data analysis than graduates in the past.
Auditing needs more and more people who can act as ‘data scientists’, and who understand the latest IT tools and methodologies and use them in their daily work. Furthermore, future auditors must be able to prepare and communicate extremely complex findings from their activities in a clear and understandable way.
IT must be adapted
At most audit firms, the entire process and all audit activities are already supported with state-of-the-art technology platforms. Many such platforms can also be integrated into the IT environment of the audited company. Even if the full potential of the technology platforms has not yet been exploited in many cases, clients are already benefitting from technology-assisted risk analyses or even fully automated audit activities. To get the most out of such platforms, the processes of the audited companies often have to be adapted accordingly, so that the relevant data are available promptly and in the required quality.
Once the processes have been adapted and the quality of data is right, audit firms can exploit the full potential of their technology, processes and competencies in order to offer their clients a real-time audit or even a forward-looking audit perspective.
In addition to ensuring a more efficient audit that focuses on the key aspects of the business, this change of perspective should also improve the quality and overall relevance of the audit. Audit firms will be able to offer their clients much greater added value with these services. Companies will receive significant support in complying with the increasingly complex regulations and efficiently implementing their business strategies, thereby creating sustainable growth for all stakeholders and increasing shareholder value.