Almost every week there is a press release or report from one of the Big 4 accounting firms urging businesses to improve efficiency through financial process automation, standardisation and innovation. So as we approach a new audit season the troubling question is why are audit fees so stubbornly high and increasing?
And at a time when the accounting profession is debating the impact of accounting automation (robotics) on low skilled, transaction-oriented jobs, why are audit firms recruiting more graduates into their audit practices than ever before?
Auditors need to automate their processes
The chances are that as audit firms start to prepare their plans for this year’s audits that audit managers will simply blow the dust off last year’s audit file and do exactly the same work as they did before. But with the advent of digital innovation and the growth of cloud-based accounting and ERP systems there is no longer any excuse for unrealistically high audit fees. If CFOs in industry and commerce can change their processes then it is incumbent on the audit profession to demonstrate how it is changing as well.
There is no doubt that auditors have invested in technology but most of that investment has been in automating audit processes and working papers. As audit fees have risen auditors have benefited from process efficiencies on the inside of their organisations – but not their clients on the outside.
To put it bluntly, audit processes and their clients’ processes are not joined up. Clearly, auditors need to safeguard their independence and cannot be seen to have a hand in transaction processing, yet there is massive scope to share information about controls, reports and performance without compromising independence.
Cloud computing could have a big impact on audit fees
Cloud ERP should have a profound impact on the way that audit processes work. The same advantages that drew hundreds of thousands of companies to the likes of NetSuite, FinancialForce, Xero and Xledger should also accrue to the auditors.
Auditors do not need to waste time on general computer controls in the cloud
Auditors no longer need to fret over the robustness of computer general controls because cloud vendors rent out space on some of the world’s largest and most resilient computing platforms. The risks of errant programmes, lost back-ups and wrong versions being restored diminish considerably in the modern cloud environment.
Auditors’ travel and accommodation costs should fall
Then there is the convenience of it all. Auditors no longer need to cart massive files around and rack up, taxi fees and large hotel bills because all of the information is available immediately via the cloud from the comfort of their desks.
Vital audit evidence is available ‘on-demand’
And when it comes to information, modern cloud-based finance packages provide reports on tap that auditors could only previously have dreamed of. No longer do auditors have to request a series of year end reports they simply help themselves to exactly what reports they need and over what period. And, for example, if an aged debtor report needs further examination they can drill down into the detail and in many cases view the invoice online. They can also see immediately if it was paid after the year end.
Controls monitoring can be automated and because all of these modern cloud-based applications are multi-tenanted (shared by all users) once the auditors have gained confidence about the application controls this level of assurance can be extended to all of their clients using the same system.
Auditors could also benefit from exception reporting and workflows that allow unusual conditions to be raised directly. The audit burden can be spread over the year and audit accuracy can be improved.
So is your auditor rising to the challenge?
Every industry sector is affected by digital innovation yet the audit profession seems to be way behind the curve. Very few firms are leveraging the capabilities of the cloud to transform their audit processes – but the writing is on the wall. Without exception, every other industry has seen technology laggards fall by the wayside. Businesses that invest in cloud technology will expect their auditors to do the same. Audit firms that do not adapt and change will not survive.