Question

Audit Question:

Discussion on the emerging technologies in the auditing profession and highlight its benefits and challenges faced. Also provided a recommendation on how to overcome these challenges.

Answer 1

Emerging technologies are altering the financial reporting environment substantially, and this change is accelerating. For example, artificial intelligence (AI), robotic process automation, and blockchain are changing the way business gets done, and auditors are leading by transforming their own processes.

Some types of technologies are :

1. How Cognitive Technology Will Enhance Audit Quality

Cognitive technology—also known as artificial intelligence—can plow through vast tracts of data and perform digital analysis of this data in a way that is impossible even with teams of auditors today. Cognitive technology involves algorithms that enable software to absorb information, reason and think in ways similar to humans.

2. The Power Of Predictive Analytics

As the name implies, predictive analytics involves using advanced data analysis techniques to make predictions—based on probabilities—about the future, and may involve advanced technologies such as artificial intelligence and machine learning to refine those predictions.

3. A New Platform Dive: Smart Digital Hubs

Not long ago, auditors worked in an environment defined by landline phones, fax machines and desktop computers: In effect, they were tethered to a desk. Then mobile technology made it possible for auditors to take their work—and much more vital information—outside the office and into the field.

4. Data analytics

This isn't the first time that we've commented on data analytics within the internal audit function. In the three years since our last article, adoption progress has been slower than expected. Data analytics maturity remains relatively low, with auditors largely using analytics tools as point solutions rather than embedding the technology into a wider strategic focus.

Benefits :

A) A more integrated risk approach: Organisations also report that technologically adept audit departments are more collaborative with other lines of defence and better aligned with stakeholder expectations. PwC's data showed only 45% of followers work closely with risk management and compliance professionals regarding technology issues, compared with 82% of evolvers.

B) Better understanding of technology risk: Auditors who use the latest technology within their own teams are also well equipped to understand the associated risks, including cyber security issues and system failures.

C) Freeu resources: Adopting new technologies typically results in more automation, which enables internal auditors to move away from repetitive and mundane tasks towards more strategic assignments. Some auditors may view automation as a risk to their jobs, but tackling more value-oriented duties will ultimately move departments - and the profession - forward as workplaces evolve.

D) Lower costs: Automation often goes hand-in-hand with cost reductions, and introducing new technologies into the audit function can improve efficiencies across the board. The initial investment and the transformation projects required for such large-scale changes may act as a deterrent for many firms, but cost-effectiveness is likely over the medium to long term.

Challenges :

1.Reliance on systems or programs that are inaccurately processing data, processing inaccurate data, or both

2.Unauthorized access to data that might result in destruction of data or improper changes to data, including the recording of unauthorized or nonexistent transactions or inaccurate recording of transactions (specific risks might arise when multiple users access a common database)
The possibility of information technology personnel gaining access privileges beyond those necessary to perform their assigned duties, thereby leading to insufficient segregation of duties.

3.Unauthorized or erroneous changes to data in master files

4.Unauthorized changes to systems or programs.

5.Failure to make necessary or appropriate changes to systems or programs

6.Inappropriate manual intervention.

7.Potential loss of data or inability to access data as required .

8.Risk introduced when using third-party service providers.

9.Cybersecurity risks applicable to the audit.

How to overcome these challenges, some solutions are as follows :

1. Quality. It’s more than following a checklist. Quality is embedded in the very culture of a firm. From knowing the client’s business to their industry, professional auditing standards, and how audits should be performed, quality is comprehensive and continuous. The focus on quality and purpose inspires good auditors.

2. Innovation. Innovation depends on insights, and the drivers to achieve that in today’s environment are big data and data analytics.Innovation means change, but change is never easily accepted, especially when it involves technology. But the profession must question its practices to drive change, to be innovative, and to remain relevant.

3. Talent. There’s no question that accounting professionals are needed and in demand.The audit demands skills of other disciplines, such as risk management, forensics, and IT, the auditor of tomorrow increases his or her understanding of these nontraditional disciplines and works more closely than ever before with data and analytics specialists.

4. Relevance.Relevance is crucial for client satisfaction and retention. While firms generally like to say their audits are unique and, therefore, more relevant, business owners “typically regard the annual audit as a cost or a necessary evil that is not relevant and adds little or no value to the business.

Some other points to take into consideration are:

1. Emerging technology and infrastructure changes ‑ transformation, innovation, disruption
2. IT security and privacy/cybersecurity
3. Resource/staffing/skills challenges
4. Infrastructure management
5. Cloud computing/virtualization
6. Bridging IT and the business
7. Big data and analytics
8. Project management and change management
9. Regulatory compliance
10. Budgets and controlling costs.