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TECHNOLOGY

Digitalisation can be the key to unlocking growth in audit

Digitalisation: why using the opportunity of Fintechs can create an innovative digital client experience

 

Digitalisation can be the key to unlocking growth in audit 44

 

By Dr Sung Hwan Chai, lecturer in accounting at Alliance Manchester Business School (AMBS), says audit firms must accelerate their uptake of digital tools as they look to grow.

Digitalisation of the audit industry is long overdue. For many years it has been felt that audit is lagging behind other industries in keeping pace with the modern times. But slowly, surely, firms are recognising the benefits of using digital tools. 

The Covid-19 pandemic has been a catalyst for this. All industries became more reliant on digital platforms, and audit was no different. Many firms had no choice but to embrace the necessary technology to maintain contact with clients and ensure we could continue to do our jobs effectively.

However, it hasn’t led to a meteoric rise in the use of digital tools – recent empirical research shows that uptake has still been limited since the pandemic.

Research undertaken by myself, my AMBS colleague Brian Nicholson and George Salijeni, lecturer at Aston University, has identified small pockets of growing digital influence within the industry. Audit firms are starting to look at digital platforms, beyond those that just support communications to those that will help them access and leverage more data sources and streamline their operations.

The potential is huge, not only in improving the current service auditors offer, but also in creating a mindset that can expand the role of audit beyond its current function. 

Development of digitalisation

Since 2013, discourse around ‘Big Data’ has provided fertile space to promote the use of data-driven technology as the industry looks to improve the quality of audit and develop the insight audit can offer.

Since then, the drive towards digitalisation has largely been led by the largest firms. We’ve seen an advance in what we call ‘Platformisation’ – a strategy for leveraging digital platforms that facilitates interactions between producers and consumers. These have most frequently been developed externally.

The primary role of digitalisation is to manage and co-ordinate the work of auditors. It creates a trail that is in itself auditable and enables greater oversight of what it is going on. It is also used to facilitate and enhance relationships between audit firms and clients, which was particularly important when site visits were limited during the pandemic.

But digitalisation has evolved and isn’t just limited to making our work easier. The introduction of ‘gamification’, with digital rewards and specialist apps, is also being used as a way of developing passion and interest in the industry and encouraging people to develop new skills. As such, the impact of digitalisation is far-reaching, and the benefits varied.

Deepening our understanding of data

One of the key applications of digitalisation is of course in our handling of data. Between twenty and thirty per cent of all audit hours are spent on interpreting data, so if businesses can find a way to streamline the process it will have huge benefits.

The range of data available to us now is significantly larger than in the past. Previously many firms were limited to using General Ledger details, which can be quite narrow in what it tells us. 

Increasingly firms are looking at how they can use third-party data beyond traditional streams, ranging from Openbanking and Companies House, to supplier industry data and data from platforms like LinkedIn.

Data comes in so many different formats that it can be difficult to interpret it consistently. Using digital platforms can help to create a standardised data model with one consistent format, which can make comparisons far more straightforward.

By taking in as much data as possible and transforming it to a standard format, we can offer deep quality data and, moreover, begin to identify relationships between the data. It guarantees more consistency than random sampling methods and means we’re able to rapidly check the consistency of data and provide factual assurance.

A vision of growth for auditing

Digitalisation is vital not only to improving the quality of audit, but to helping the industry to adopt a growth mindset. It can enable businesses to be more agile and open to experiment with going beyond what audit is currently viewed as. 

There is a perception that audit is secondary to financial statements, that it is essentially a subset of assurance. But the core purpose of audit is to think differently and using new digital tools can help us to do this. 

While much of the progress so far has been led by the larger firms, over time these digital resources will be available throughout the industry. The question will be whether they are able to adopt and implement these, and what the possibilities are if it can be done effectively.

You can find out more about Sung Hwan Chai, Brian Nicholson and George Salijeni’s research, as well as hear from a number of other leading academics, as part of a recent webinar series hosted by Alliance Manchester Business School: https://sites.google.com/view/audittechnology/home 

 

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