The COVID-19 pandemic showed how important technology is to the audit function — specifically, the need to use innovative technology or computer-aided audit tools (CAATs) to help improve the efficiency and quality of external audits in a virtual environment.
Auditors traditionally had to spend time at a client’s facility to test sample transactions and internal controls manually. Now, test checking can be replaced by 100-percent verifications since computers can quickly analyze more data than humans. Depending on the client and the firm’s internal systems, it may also be possible to audit in real-time, eliminating the need to rely on data that could be outdated.
Auditors can now use technology to remotely identify fraud and operational business risks, generate financial reports and tailor their approach to deliver better results. In addition, data analytics can allow auditors to better understand the accuracy of the reported information. As IT applications become even more sophisticated, auditors can use a combination of client, predictive, industry and market data to make more meaningful connections, identify patterns and form correlations between the data to identify issues and find solutions.
Even with all the technological advancements available today, auditors will still need to use their professional judgment to determine if a client’s financials comply with Generally Accepted Accounting Principles (GAAP) and other audit standards.
There are many technology advancements that auditors can use to help with data analytics, analysis, data mining and other audit functions.
Artificial Intelligence
Cognitive technology — also known as artificial intelligence (AI) — can assess and quickly analyze vast amounts of data in a way that is impossible even with a team of auditors. Cognitive technology involves algorithms that enable software to absorb information, reason and think in ways similar to humans. It also encompasses a process known as machine learning, where computers can course correct and try new strategies as they encounter obstacles or unknowns in their work.
Auditors can use cognitive technology to analyze structured and unstructured data in ways that were not possible before. Structured data is highly organized and formatted to be easily searchable in relational databases. Unstructured data has no predefined format or organization, making it much more difficult to collect, process and analyze.
Predictive Analytics
Predictive analytics uses advanced data analysis to make predictions based on probabilities about what might happen in the future. Auditors can use digital tools to extract client information and use predictive analytics to identify patterns and possible outcomes and trends. This type of analysis can help auditors gain deeper insight into a client’s business and financial risks by comparing the data with industry and market benchmarks.
Smart Digital Hubs
Smart digital hubs serve as “smart platforms,” allowing auditors to work remotely and in real-time, utilizing data and analytics, automation and visualization. Examples include virtual collaboration tools, chatbots, e-commerce apps, virtual reality apps, conversational AI, omnichannel marketing and self-service portals.
Cloud-Based Computing
Apps like Microsoft Azure, Google Cloud and Amazon Web Services (AWS) enable auditors to perform testing tasks and auditing from any location. Auditors can also securely deliver information, reports and working papers via the cloud.
While Excel is still widely used by accountants, systems like Sage Intact, DataRails and Case Idea are now available to help auditors improve efficiencies and outcomes.
Having access to more meaningful data implies that clients will expect more insights from the audit. Auditors will need to provide clients with information on what happened in the past, as well as what can be expected in the future.
Although the information is abundant online, auditors must research and test third-party data to ensure it is reliable, relevant, objective, accurate and complies with auditing standards. It is therefore advisable to use only vetted, trusted and respected sources of information.