“One of the key challenges that firms really struggle with is making the best use of these products in a way that fits in around what are fairly restrictive methodologies,” John Toon, Senior Audit Manager and Technology Strategy Lead, at Beevers and Struthers, says.

Another challenge for auditors is that the technology can overwhelm them. Accountancy students who have studied data analytics as part of their training are only just qualifying, while existing auditors still need training on data analytics.

Indeed, where Toon has seen audit firms succeed with data analytics is when they have a clear digital strategy for a specific area of audit. “We’ve managed to make much better use of analytics around the management override of transactions in financial statements and around journals testing in particular,” he says.

To help with the teething problems, Toon says his firm created a data analytics team made up of graduates from the Manchester University Business School who have masters degrees in accounting data analytics, who helped in two ways: with the data ingestion process and with initial analysis and insight.

Franki Hackett, Head of Audit and Ethics at Engine B, says the firms that are not quite reaping the rewards of DA tools are those that “have been brave enough to step into the space on risk assessment but haven’t yet felt that they can properly revolutionise their methodology and change the way they test”.

Critically, though, clients are increasingly beginning to ask how firms use technology in the audit process.

Ian Pay, Head of Data Analytics and Tech, ICAEW, who previously worked at PwC, says: “The clients are asking for it in tender processes for external audits. All of the proposals that we were doing at PwC, the clients were asking ‘what is your approach to technology?’”

The audit process is moving from the traditional approach of a combined risk assessment using substantive sample testing and assessment of controls to a technology-enabled test of the full population of entries, not just a sample. 

The benefits are substantial. Tech-enabled audits provide greater certainty and precision in regard to the transactions, and more transactional evidence of control weaknesses, not to mention the efficiencies available.

Hackett says: “Longer term, it will save money. It’s always more expensive in year one and year two, so you have to be prepared for that, but in the long term the efficiencies are phenomenal. We’re seeing customers and audit firms saying that some of the automation that we offer will take a third out of the cost of some of their audits just because it’s so labour intensive at the moment. You can give much greater value to your clients. 

“If you improve the way you hold data and the way you utilise data you can manage your organisation better and improve your audit. Quality, efficiency and insight are the three big watch words.”

With the digitisation of tax as a result of Making Tax Digital experts say there are a lot more opportunities around tax that haven’t yet been really tapped into.

Open banking is another area ripe for opportunity. Some vendors are starting to embrace the opportunity that open banking affords in terms of the accessibility of bank data, which is a key element of testing in terms of proving that organisations have the cash in the bank that they say they have.

Currently, the process is a confirmation one either where the auditor reviews the bank statements or asks the bank to confirm the balance, which won’t necessarily be a real time balance.

Open banking for audit could potentially detect fraud and accounting irregularities such as in the case of Wirecard. Wirecard collapsed into insolvency in June 2020 after it emerged that €1.9bn of corporate cash did not exist.

Toon’s firm is already using open banking tools. “We use Circit for accessing open banking data for our clients. That is incredibly powerful, and the opportunity is massive. And you can see that because both conformation.com and Inflo have moved into that space fairly recently. It’s very valuable to have that kind of information available without having to go through the process of a bank confirmation.”

Beevers and Struthers has now started to combine the data from Inflo on the general ledger with the bank account information from Circit, and verify 100% of transactions throughout the entire system. In terms of efficiency, Toon says that his teams can now get the information almost instantly.

“That in itself takes away a considerable amount of work that our teams would normally have done in terms of tracing bits of information through the bank. We could conceivably get to a point where you can be verifying transactions as they happen in a general ledger against the bank transactions almost in real time,” he says.

Blockchain is a further area that could be exploited for audit purposes but hasn’t yet delivered. “You can see the opportunity there from an audit perspective to not have to rely solely on the client to tell you what the supply chain looks like and where all the inventory sits. If information is stored through blockchain technology, then that information is decentralised and available to everyone who has permission to access it. So, you become less reliant on the client,” Pay says.

For auditors just beginning the digitisation process, experts agree that it’s vital to understand what a firm is trying to solve or fix. Pay says: “People get very excited and distracted by shiny tech, and it can be very appealing to just spend a huge amount of money on a piece of software. But ask yourself: what are the problems that you want to solve?”

• Read more about using tech to enhance audit here.