The audit profession has been under scrutiny. due in part to several high-profile corporate failures. Image Credit: Supplied

The audit profession has been under scrutiny. due in part to several high-profile corporate failures. Stakeholders and regulators have thus questioned the “quality” in the field.

Current events also highlight a gap between what audit assurance provides and the assurance expected by stakeholders. It now falls on the profession to clarify what level of assurance is reasonable... and realistic. Simultaneously, there is a need for greater understanding as to how audits are conducted to provide a more robust response.

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While digital strategies play a vital role for businesses and auditors to remain productive during the COVID-19 crisis, technology tools were already being deployed to substantially improve audit quality and assurance.

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Companies are facing intensifying regulatory pressure and rising expectations from investors and shareholders. Tasked with performing audits in an increasingly digitized business environment, auditors are deploying digital tools to process the massive volumes of data and information. Intelligent automation and cognitive technology are being used to sift and organize this data.

In response to the complexities of working with corporations, new technologies are being adopted by audit and assurance. Robotic Process Automation (RPA), for instance, can analyze 100 per cent of datasets, rather than relying on sampling, and thus improving audit quality. Using automated technology, audit can identify and review a client’s processes.

This automation frees up auditors’ valuable time, enabling them to scrutinize risks or uncertainty in depth, gain a deeper understanding of the business and arrive at better assessments, fulfilling their responsibilities to the investing public.

Over time, the increasing use of robotics, machine learning and Natural Language Processing (NLP) increase the depth of audits and deliver much more reliable assurance than before, as increasingly granular and sophisticated analyses take place.

Big audit firms are already using these tools, while responding to unique risks. For instance, our smart audit platform, KPMG Clara, its flexible deployment on the cloud or on-premise (dependent on clients’ preference), and capabilities such as Dynamic Risk Assessment (DRA) enable risk analysis in four dimensions.

No more of status quo

The pandemic created challenges but also acted as catalyst to speed up digitization across functions, including audit. Government-mandated lockdowns effectively ended travel, creating a significant opportunity for the profession to challenge the status quo.

In the interest of public health and safety, client interactions were limited. Similarly, many clients were either working remotely or did not allow visitors on site. These circumstances necessitated a different approach in remote auditing.

Previously, audit teams would typically be based at the client site, engaging with and asking questions of their client teams, both from a business operation and finance perspective. They would also physically inspect invoices and source documentation, observe stock counts and sample test, as well.

Physically remote

Although physical examinations of evidence cannot be eliminated, auditors are using technology and innovation more effectively, adapting new ways of working, remote tools and virtual meetings to review documentation or inspect evidence in controlled environments. With clampdowns on travel, audit teams are no longer able to spend weeks at the client site. They may go in once a week, collect material and return.

With remote work, the evidential paper trail is increasingly digitized, helping to close the gap. Big audit firms are using data analytics and in-house technology to effectively audit data held and processed in clients’ IT systems, to better identify risks.

Moving forward, auditors may be expected to exercise extraordinary judgement while evaluating asset impairments, valuations and estimates, even as they operate within highly uncertain markets exacerbated by the COVID-19 crisis.

Alternative delivery models, where some routine functions are outsourced to offshore locations, are now being evaluated. Appropriate safeguards ensure delivery centers access information on-site, rather than the data being crunched to the remote location.

The challenge is to leverage technology without compromising data security. Recent times have forced many businesses to re-assess, while throwing up unexpected challenges. For the audit profession, gathering evidence, evaluating and documenting, whilst maintaining a healthy degree of professional skepticism will continue to remain fundamental, no matter the market, technology or business.

- Emilio Pera is Partner and Head of Audit at KPMG Lower Gulf.