We're in the midst of a revolution in the audit industry. That revolution is being driven by disruptive technologies and the ability to effectively analyze and interpret data with new tools. Data analytics, artificial intelligence and other emerging technologies make it possible to transform both internal and external audit functions. Traditionally, these functions deliver historical perspectives based on samples of past activities. Now, good auditors can drive real-time insights regarding an organization’s risks and opportunities, based on an analysis of the full universe of a company’s transactions. All of these changes have the potential to raise the bar on the quality and efficiency of audits, while at the same time generating greater business insights that can add significant value.
Audit firms should focus on implementing processes that enable them to realize the promise of innovation and must re-think criteria for hiring and developing key talent to recruit and retain those best equipped to make the most of the new tools available. Firms that successfully meet both challenges will create the greatest value for both audit clients and shareholders, and will have earned their place among industry leaders.
Innovation: The Game-Changer
Traditionally, audit's contribution and relatively circumscribed role was driven by statistical sampling and focused on end-of-year financial statements. Now, as a result of advances in both automation and analytics, we can analyze 100% of the population, and we can do this throughout the year. Broad categories of transactions can be disaggregated into groups with different risks, facilitating a more focused audit approach.
Innovative tools now provide the ability to take deep dives into the business, in real time and on an ongoing basis, to identify both potential problem areas and opportunities that can be acted on quickly. The race goes to those who possess the expertise to analyze the data and apply it wisely to making critical decisions.
Cultural Adaptation: The Other Half of the Equation
Assembling even the most impressive data and analytic tools means little without the people who know how to make that analysis relevant to key business decisions. Audit firms have to be willing to invest in the tools and analytics that will enhance their services to clients and in identifying the talent that will ensure the greatest value. Knowing how best to leverage the human aspect of the transformation of audit is critical to improved processes and smarter client deliverables.
What we are really talking about is cultural change and adaptation. It is highly likely that, as audits change and increasingly add value to clients' business strategy considerations and operations, those charged with conducting the audit will present a new profile. That profile will reflect very different personal and professional characteristics than audit talent of the past.
The first, essential step for any audit firm geared for success in this disruptive environment is to embrace rather than resist change. Change is already here, and the firms that apply advances in automation and analytics will lead the way. They will create continuous learning and improvement cultures, constantly looking for ways to increase the value of the audit.
In building that culture, audit firms will work more closely with clients, providing insights while maintaining their independence. Data will be viewed as a jumping-off point – not merely an end in itself – for broader discussions about the industry, the business, and strategic objectives.
The talent required to operate effectively in this new environment will include what we refer to as citizen data scientists, that is, professionals who understand not only how to assemble and analyze the right data, but also how to interpret it within the context of a particular industry and company.
A much broader platform of skills will be needed to successfully execute this work on behalf of clients. Audit professionals will almost certainly be spending less time on manual, repetitive tasks and more time on tasks that require judgments and deeper insights based on the data. Competencies that increasingly will be in demand will include curiosity, nimbleness, flexibility, and the ability to adapt and learn. These professionals will require new skills in data analysis combined with the business acumen to interpret analytics in the appropriate context.
The Role of the Board
Against the backdrop of audit transformation, in culture and process, the implications for boards are clear. They should be seeking audit firms that can deliver the highest quality audits and have the tools and professional expertise to add greater value.
As with any external professional services relationship, directors should expect an ongoing conversation that applies specific professional expertise to the operations and strategic objectives of the company. Directors shouldn't be intimidated by references to emerging technologies but should take every opportunity to ask questions and learn more about these areas. Auditors should be able to explain what innovative tools are being brought to bear on the audit and how this is affecting the audit approach. Boards not getting adequate answers to their questions should consider whether their current firm is a good fit for the company's needs.
The best news for clients is that innovative tools and processes for audits will improve audit quality and efficiency, generate new insights, and elevate the audit function overall. Boards should make sure they have an auditor that innovates and attracts the best talent – to make full use of the tools and technology to achieve the best results. As with any important decision that has far-reaching implications, boards will have to do their homework, but a thoughtful choice of an audit firm should yield substantial benefits for the company.
Audit Innovation & Strategy
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