DIGITAL tools and artificial intelligence are transforming the business landscape, but what does the digital revolution mean for audit and auditors and, particularly, for those in smaller practices?

A new playbook, produced by ACCA and Chartered Accountants Australia and New Zealand, is a practical guide for audit firms of all sizes, but is especially relevant for small and medium-sized practices, setting out the ways in which digital technology is transforming the audit process. Audit and technology playbook: A practitioners’ guide also explains how firms can manage the key risks associated with technology, and looks at the implications for practices in terms of talent management and governance.

The aim of the guide, says its foreword, is to equip readers “with knowledge and tools to make the most of technology becoming available while maintaining the quality and integrity of your work”.

Tech trends

The guide looks in detail at the six technology trends that are shaping the business landscape — artificial intelligence (AI) and machine learning, blockchain, cybersecurity, the Internet of Things, robotic process automation, and big data and analytics — and their applications, impact and relevance to audit work.

It directly addresses the perception that smaller firms are less likely to engage with advanced technology and less likely to benefit from it than their larger counterparts. “Smaller firms are increasingly agile in terms of implementing software, and off-the-shelf solutions are increasingly powerful,” says Steven Watson, managing director of the National Audits Group Australia, who is quoted in the guide.

The guide details several types of audit software solutions that could potentially lead to higher quality audits and greater profitability for smaller firms:

• conflict-checking and cross-referencing software that allows firms to screen client data against internal databases to identify potential conflicts of interest or independence issues

• chatbot audit assistants that can resolve common questions

• optical character recognition technology, which converts PDFs, screenshots and other documents into editable and searchable data

• cloud-based solutions to improve the client engagement process through data sharing.

Risk factors

The guide is clear that while technology brings huge opportunities, notably in the case of generative AI, it also comes with considerable risks.

‘While technology can support and accelerate decision-making,’ says the guide, ‘an over-reliance on these tools has the potential to compromise audit quality. This is because the tools are not infallible; GenAI [generative AI] tools, for example, analyse what statistically appears to be most likely to be correct.’ The output of these tools can also be compromised by poor quality data.

The guide stresses that human input remains the most important component of the audit function: ‘Auditors should maintain professional scepticism and exercise professional judgment in assessing the accuracy and reliability of technology outputs to ensure that audit judgments are not unduly influenced by flawed or incomplete data.’

The risk of automation bias, where technology subtly influences an auditor’s judgment, has already been raised by standard setters and regulators including the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA). The IAASB, for instance, has produced specific guidance on how firms and auditors can address the risk of over-reliance on technology when using automated tools and techniques. The guide strongly recommends that auditors keep up to date with regulation around the use of AI as it continues to develop.

Top tips

The guide includes five key steps that smaller practices should keep in mind when considering the use of advanced technology:

• Develop your technology strategy and infrastructure. The guide recommends appointing a technology champion (or team) to lead the implementation effort. This should include assessing the firm’s current technology, what can be easily integrated, the budget and client expectations. The technology roadmap should include a reasonable timeline that sets goals, assigns responsibilities, and determines key milestones, project phases and outcomes for each phase.

• Develop a change management programme. The tone for implementation needs to be set from the top, and culture and employee engagement is crucial: ‘The leading cause of change failure is employee resistance and ineffective management of the human aspect. With that in mind, firms must prepare their staff for the inevitable teething problems that come with adopting new software.’

• Invest in continuous skills development. This, says the guide, is arguably the area that will require the greatest degree of adaptability, given the speed of innovation. “Ongoing training and personal development programmes should be available for all staff at all levels, with experienced staff empowered to train and mentor new employees.”

• Focus on your talent pipeline. A firm’s need for certain skills will grow with its use of technology. The guide adds, though, that while technical competence will always be important, qualities such as creativity, collaboration and communication will become even more so in the future. This suggests that firms should invest in continuous skills development and foster an innovative culture to help them stay competitive and forward-thinking.

• Set guidelines and governance standards. “The guiding principle,” says the guide, “is that auditors must maintain their professional integrity, uphold confidentiality, and adhere to ethical standards while leveraging advanced technologies.” The foundational work of international standard setters such as the IAASB, the International Federation of Accountants and the IESBA provides the framework that auditors and audit firms need to help them make technology-assisted audit judgments that are fair, unbiased, and compliant with ethical and professional standards.

Author: Liz Fisher, journalist

Source: ACCA Accounting and Business magazine