Harness Technology to Deliver More Data-Driven Audits

As auditors, we must continually strive to build a comprehensive and deep knowledge of existing standards and practices to make auditing more effective and efficient and deliver better quality audits. Along the way, we must also incorporate new auditing standards and support modern ways of working, including hybrid and remote workforces.  

I recently had the privilege of speaking with Carl Mayes of the AICPA to discuss his role in the Enhancing Data Quality Initiative and the auditing trends affecting our industry today. In particular, we explored how data drives innovations in audit, including the role of advanced data analytics in risk assessment. 

Data-driven audits are a hot topic in the auditing world right now due to the increased presence of risk for many businesses with respect to fraud and error due to pandemic-induced change, whether that's dealing with new remote procedures or turnover. As auditors, we're responsible for assuring and obtaining reasonable assurance that the financial statements we have audited are free from material misstatement. That's where technology can come into play to guide and augment the audit process to ensure accuracy and deliver quality audits in less time.

Using Data-Driven Approach to Increase Audit Quality in Remote Situations

One of the accounting industry's significant challenges is a talent shortage and changing of the CPA guard as experienced staff retire. To overcome this, many firms are doubling down on improving efficiency and finding ways to leverage existing talent to still perform quality work.  

Additionally, firms are looking for ways to better coordinate and collaborate with clients—especially as entire audits are being conducted remotely—to ensure auditors are getting all the right information needed upfront to complete quality audits. 

So how do you collect audit evidence when you can't physically be at the client site in person? What is permissible according to auditing standards? What can you do to drive assurance and efficiency?  

We can use many technology tools to ensure we're collecting the audit evidence needed to meet standards requirements. Audit standards don't prohibit conducting procedures remotely, nor do they spell out how you must obtain evidence.  

For example, you can leverage video conferencing technology to conduct fraud inquiries, use screen sharing and secure portals to observe access controls, and leverage read-only access to client systems to gain access to all the information you need. With these tools, auditors can start to use some of that data earlier in the process to better frame conversations about things like year-over-year analysis and inform risk assessment upfront. Then when we start to tailor our audit programs, the information brought into the data-driven risk assessment can help us determine the right level of testing we need to perform throughout the audit.

Avoiding Common Errors in Risk Management

Risk assessment has been a focus of the Enhancing Quality Initiative for more than four years. In one poll of peer reviewers, Mayes shares that they found that 50% of all the audits reviewed had nonconformity issues in at least one area, including internal controls, assertion level, account level, or financial statements. As the new risk assessment standard comes out, it will place greater emphasis on internal controls, so auditors will need to be able to identify significant risks and respond appropriately.  

Another common error in risk assessment is at the assertion level. For example, auditors need to focus on the assertions relevant to the audit and make sure the assessment is on that level so that procedures can ultimately be linked back. If you're focusing on the risks associated with the assertions that matter most within your audit, it will make you more effective and more efficient. 

Technology and data-driven solutions can help support and guide this process.  

Software solutions help auditors adapt quickly to last-minute changes, stay up to date on new standards, and follow guided questions to assess the internal control environment providing a clearer picture of sub-processes actually in existence.  

Diagnostic tools alert auditors to missing steps or evidence needed and keep them on track with checklists to ensure all steps are completed according to the American Institute of Certified Public Accountants to satisfy the peer review.