Auditing and Technology
Sumesh Krishna, Partner
COVID-19 has brought in tremendous changes to every sector across the world. Many businesses had to shut down, while the remaining shifted to digital or online business. Technology has been part of auditing for a few years now; but with the spread of the novel coronavirus, it has become an inevitable part of the auditing processes. Every business has been forced to change their modus operandi and had to learn the latest techniques.
The past few months have witnessed massive technological advancements and changes in every sector, including the government offices, in every country in the world. All began to sell their services online. As for auditing, technology has been in use for a few years now with computer-aided audit tools.
The Audit Quality Review (AQR) team at the Financial Reporting Council (FRC) publishes inspection reports every year. This year a report was published in March on the thematic review of “The use of technology in the audit of financial statements” Samples of tech implementations at the top six audit firms were considered for the review.
According to the review, the FRC concludes that all the firms’ common factor was data analytics for audit testing. Data analytics is used for risk assessment and substantive testing. Providing necessary training and tools for employees at all levels can bring in more meaningful results. But there are many difficulties that firms of all sizes face regarding the same. The data analytics have added advantages of AI assistance, natural language processing and machine learning.
More than the advantages, the FRC is trying to warn businesses about the risks in technology. AI and other algorithms are made through machine language, and it may be difficult for a commoner to understand. These machine language algorithms can result in prejudices and biases from the training data which can negatively affect the auditing process.
These issues can be resolved with design principles, ensuring that AI is identified and performed by following good practice. Communicating with all the employees is the next step to be taken to avoid such problems. The biases can be reduced by clearing the training data, by removing the sensitive fields, and through tests. The machine learning-based systems should also be treated like any other system in the entity, only then can we keep the technology under control without causing any issues for the company.
The proper functioning of the design principles, models, and controls will boost any entity’s confidence and the service provider should be able to assure the business owners.
Small audit firms use technology with ease, and this is due to the support of a third party who works with the entity by following their methodologies and approaches; this may not be possible for every auditing firm. The automated algorithms will give you a 100% result on testing where a small data is considered but it may not be the case for the entire population. The FRC’s report highlights the growth of natural language processing and data analytics which will be beneficial for the auditing sector.
The computers will now read and interpret the written language; this is seen in some audit firms now where the computers take on by reviewing the contracts and meeting minutes. Another technology that is gaining popularity in the industry is blockchain. The blockchain-based accounting system allows making changes and self confirms many contents.
These new technological advancements bring immense help to the auditors and make their jobs easy, but it requires special attention and regular checks to make sure that the technology is not ruining the system completely. Dealing with machines is easy unless you give them the power to destroy you.
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