Remote working and travel restrictions are changing the way audits are conducted. Here's how to utilise technology and get the job done.
At a glance
- Most Australian companies have June year-ends, and if restrictions are not lifted, audits will be conducted under very different conditions.
- Regulators recommend greater use of technology to ensure the quality and compliance of audits conducted amid operational challenges.
- These technology solutions need not be highly sophisticated, but can include easily implemented, off-the- shelf software.
By Claire Grayston FCPA & Dr Jana Schmitz
COVID-19 has given rise to rapidly changing and unprecedented conditions under which auditors, who historically would be based largely at a client’s premises, are required to conduct audits remotely.
While December 2019 year-end audits were affected by significant subsequent events due to the escalation of COVID-19 risks, in many regions the auditors’ work was largely completed before social distancing and shutdowns took place.
However, for March 2020 year-ends, the impact of remote working and travel restrictions is changing the way audits are conducted. For June 2020 year-ends, the entire audit will need to be conducted under these conditions, unless restrictions are lifted.
Australia could become a test case for remote audits, as most Australian entities have June year-ends.
Alternative audit procedures
How can auditors maintain audit quality, continue to comply with auditing standards and satisfy the regulators amid these constraints? Although auditors may qualify their report based on a limitation of scope if evidence is unavailable, they must first pursue alternative procedures.
The Auditing and Assurance Standards Board (AUASB) recommends greater utilisation of technology when juggling the operational challenges COVID-19 presents.
These challenges include inaccessibility of clients’ stocktakes due to social distancing and travel bans, and restrictions in reviewing audit files of subsidiaries and component entities in overseas jurisdictions.
The standard-setters cite videoconferencing for holding client interviews in relation to fraud, viewing stock counts by video link to assess the existence and condition of inventory, or reviewing the component auditor’s work remotely – where not prohibited by laws or regulations.
Technology has the answers
Technological solutions need not be highly sophisticated, but instead can use easily implemented, off-the-shelf software such as:
- OneDrive, SharePoint or Office 365 cloud suite to upload and share client data
- Microsoft Power BI, TeamMate analytics or ActiveData for Excel to conduct data analytics, and data visualisation to better understand client data
- UiPath to develop tools enabled by robotic process automation and artificial intelligence to automate processes usually undertaken manually by auditors
Brydon report foretells audit future
When UK businessman Sir Donald Brydon, who was tasked with investigating audit effectiveness, recommended in his December 2019 report Assess, Assure and Inform: Improving Audit Quality and Effectiveness the increased use of technology in audit, little did he know that within a few months it would become virtually impossible to conduct an audit without it. However, for auditors, who must meet strict evidence and documentation requirements, the implementation of technology is challenging.
Arguably, certain impediments have delayed auditors from fully embracing technology in the same way as other business services. Brydon astutely observed four obstacles to the development of technology in the audit:
- the availability of the data in a usable form
- the willingness of companies to permit access to 100 per cent of data
- the possible need to assure the systems used to create the standardisation and consistency of the data presented for analysis
- the need to assure the algorithms used in analysing the data to create conclusions
Addressing these obstacles may be fast-tracked by the urgency to overcome the extreme limitations of access to client records and data faced during COVID-19 lockdowns. The longer the lockdowns last, the greater the need for technology-based, innovative solutions.
There is certainly no shortage of interest in the acceleration of auditors’ technological innovation. The International Auditing and Assurance Standards Board’s Technology Working Group published non-authoritative support material related to auditors’ documentation when using automated tools and techniques, such as data analytics, robotic process automation (RPA) or artificial intelligence (AI) applications.
The UK Financial Reporting Council’s (UKFRC) Technological Resources: Using Technology to Enhance Audit Quality, released in March 2020, seeks comments on the increasing use of AI, machine learning and natural language processing within the audit process, data standards and extraction issues, audit documentation, data analytics exceptions, and the growing use of third-party technology providers. This discussion paper builds on the UKFRC’s recent thematic review, The Use of Technology in the Audit of Financial Statements.
The step change that COVID-19 heralds is driven by the universal shift to remote working for auditors and clients alike, which has created, almost overnight, the need for a significant change in working habits and mindset.
Recognising that auditing standards may not be keeping pace with developments in technology used in performing audits, the AUASB responded by establishing the Project Advisory Group, which will develop guidance on how auditors can comply with auditing standards while implementing technology such as blockchain, RPA, AI, and cybersecurity. The objective of the guidance material is twofold: to support the use of technology by auditors in executing audits, and to support auditors in auditing the outputs of technology used by their clients.
In addition, regulators around the world are encouraging auditors to access client documentation and data using technology, and conduct alternatives to procedures requiring access to client premises and staff during COVID-19 lockdowns.
Given the range of technological solutions that are increasingly accessible to smaller firms, and which are no longer the purview only of the large accounting firms with their own proprietary software, the opportunities for smaller firms to digitise their audits have never been greater.
The step change that COVID-19 heralds is driven by the universal shift to remote working for auditors and clients alike, which has created, almost overnight, the need for a significant change in working habits and mindset. This fundamental shift will be the key factor in accelerating auditors’ adaptation to technology- driven audits.
CPA Australia’s policy team welcomes feedback and comments. Visit the policy pages for more details about our submissions, plus information about open consultations and the latest policy bulletins and newsletters.
Claire Grayston FCPA, policy adviser for audit and assurance at CPA Australia, and Dr Jana Schmitz, policy research analyst at CPA Australia