Developments in artificial intelligence (AI), data analytics and blockchain technologies are having a significant impact on businesses. The pace of technological change is particularly affecting the finance function, creating a need to revisit the audit approach.
A recent seminar jointly organised by the Institute of Chartered Accountants in England and Wales (ICEAW) and the Dubai Financial Services Authority (DFSA) looked into the impact of technology on the audit and finance profession.
Firstly, the event highlighted that technology will drive down the time to conduct an audit as testing becomes more automated and is conducted in real time. With improved technology, it will be possible to test the full population of entries and not only a sample.
The profession will move away from ‘What could go wrong?’ to ‘What has gone wrong?’. There will be more certainty and precision with regard to transactions and more transactional evidence of control weaknesses. There is a need to develop new methods for calculating audit fees based on the technology resources used and the value added by auditors.
There will be opportunities for auditors to develop more forward-looking assurance services, helping clients to manage risk and growth. They will better identify financial reporting, fraud and operational business risks and tailor their approach to deliver a more relevant audit.
Technology is directing changes in the way clients run their businesses, changing their business models and processes. Auditors need to stay ahead of these changes in order to provide relevant advice and support services. One way is for businesses and audit firms to recruit and partner with a variety of technology experts.
Distinctively, audit firms need to invest in digital initiatives, including AI, blockchain, cyber security and developments in data capabilities so as to deal with the new technology-driven risks that their clients face and safeguard their digital assets.
Like many forms of technology, blockchain in accounting and audit greatly reduces the potential for errors when reconciling complex and disparate information from multiple sources. Furthermore, accounting records are not alterable once entered onto a blockchain, even by the owners of the accounting system. And because every transaction is recorded and verified, the integrity of financial records is guaranteed.
Likewise, as global business processes become more complex, internal auditors can use more advanced analytics to deliver deeper and faster insights.
For example, a global automotive firm wanted to improve the efficiency of its dealership audits. The internal audit team defined behavioural indicators that would identify transaction abnormalities. It developed a predictive model based on different variables using multiple dozens of terabytes of data. Information from historical audit results (pass or fail) was taken into consideration to enable the transactions to be scored.
This enabled the business to assess risk for 100 per cent of all automobile insurance claims as compared with a random sampling that would typically only cover one per cent of the population. The exception identification rates improved globally by a factor of three.
But while it is clear that lower level accounting and auditing skills can be replaced easily by technology, human business acumen and communication skills remain crucial.
The required combination rests in a blend of human capital resources, incorporating specialist technology and digital skills, technical accounting and audit skills and professional skills such as communication, leadership and commerciality.
Corporates and professional membership bodies and service firms need to engage with technological developments and anticipate the benefits, risks and opportunities they bring.
Mr Armstrong is the FCA and ICAEW regional director for the Middle East, Africa and South Asia (MEASA).