In my almost 25 years as a practicing CPA at PwC, I have always been a witness to technological innovations that have remarkably transformed our audit practice.
As an associate at the firm in the early ‘90s, we analyzed our clients’ transactions and journals, using a yellowish columnar paper worksheet. The mid-‘90s offered a solution to this tedious process by using electronic Excel spreadsheet and other software.
During that time, we documented the results of our audit procedures in manual stacks of audit work papers. In the early part of this present millennium, PwC was the first to start performing audits using electronic work papers with our propriety program then called MyClient, and now, Aura.
Looking into the future, the rise of Data Analytics, Internet of Things (IoT), Artificial Intelligence (AI) and Robotics is expected to dramatically change the landscape of the auditing profession and shake up how audit is done.
In a recent gathering, after introducing my profession as an auditor, I was asked, “Aren’t you threatened by IoT, AI and Robo-adviser?”
Will these innovations eventually take the place of the auditor? It’s a question worthy of an article.
Certainly, these new technologies are opening up a slew of new opportunities ahead.
Data analytics can now analyze and test entire sets of transactions, such as revenues or expenses, addressing restricted sampling methodology. The wider test coverage can highlight uptake in revenues that can expose potential trade loading issues or spike in expenses that can expose potential claim for unauthorized expenses. Journal entries can also be analyzed in its entirety and highlight exceptions, such as those posted by an unauthorized person, and at odd times such as on holidays, among others.
Predictive technologies can now be applied to past data sets to run “what-if” scenarios. It can also be used to see how changes in a given data set affect the future results of operation and financial position. For example, how would changes in the interest rates impact the company’s revenues, spending and cash flows?
AI advancement will soon allow models to scan and read through thousands of documents such as sales, leases and employee contracts; identify keywords; and extract relevant business and accounting information. Unstructured data and comments from Facebook, Twitter and LinkedIn can already be filtered to gauge erroneous behavior, potential contingent liability and future litigation.
Robotics will be most keenly felt where auditors use technology to replace manual audit processes. These include mobile devices being used in inventory count to transmit results while on site, or the use of drones in a stock take for inventories and machineries to provide real-time results. Some of these innovations are already taking shape in our own PwC audit.
While these innovations can improve operational efficiency and provide significant competitive advantage, they also bring challenges to fore. Different skill sets will be required of audit associates whom the firm will hire in the future. The vast coverage of samples for testing will reveal more exceptions than ever before, so it may be more challenging to investigate and dispose. Client expectations will include ongoing and real-time audits, efficiency to drive reasonable audit cost, better insights and improved quality of work. Regulators will also have to keep the rules aligned with the new ways of auditing. The pitch battle between auditing firms will highlight competitive advantage around investment and the advanced application of these new technologies in their audit practice.
The possibilities from these technological innovations are endless. It is and will be a game changer on how the value of audit will be perceived by audit clients and the marketplace.
These innovations, if effectively engaged, are certainly going to be an auditor’s powerful ally in delivering quality, value and depths of insight to clients.
But will auditors be eventually displaced by these technological innovations? No, I don’t think so.
Clients will still need a real auditor to provide rationale behind the numbers and make sense of the exceptions. Only a human auditor can exercise sound judgment and professional skepticism required by the standards. Clients will continue to prefer a real human being to advise them on their business risks and provide tailored solutions. Company financial statements will still lend credibility to the vast users of financial statements, such as stakeholders, investors, creditors and the public, if the auditor’s report has been signed off by a real CPA, and not by a Robo-adviser.
As a practicing audit partner at PwC, I join everyone else in our firm in upholding the purpose of our profession: solve complex business problems and build trust in society. Technological innovations will only serve as a tool in achieving such purpose. Solving business problems and building trust can only come through the auditor’s thoughtful analysis, objective insight and reasoned judgment. Technological advancements are nothing without the passion and emotion of a true auditor. In the end, nothing beats the magic of a human touch.
Imelda D. Mangundaya is a partner from Assurance and Assurance Risk Management of Isla Lipana& Co./PwC Philippines. Email your comments and questions to email@example.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.