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Technology has been transforming audits for years, and that trend will only accelerate with Statement on Auditing Standards (ASS) no. 142, Audit evidencewhich entered into force on December 15, 2022.
SAS no. 142 addresses the use of new technologies used by auditors and clients and provides examples of how auditors can use tools such as data analysis software, artificial intelligence and drones.
“SAS 142 will have a butterfly effect,” said Brian Jackson, CPA, audit technology partner at Crowe LLP, based in Chicago. “It’s the seed we’re planting today about how we can use more technology that will open up transformations we haven’t even thought about in the coming years.”
Firms and organizations across the country have already implemented many technologies to improve the efficiency and effectiveness of the audit process, but some firms have been slower to adopt the new tools.
“I think there’s a lot of skepticism, which is a good thing.” Auditors are very skeptical about software and whether the technology will actually do what it says it will do,” said Samantha Bowling, CPA, CGMA, an audit partner at Garbelman Winslow in Maryland and a member of the AICPA’s Auditing Standards Board (ASB). . “I’m seeing more adoption in the last year, but I think it’s slower than it should be.”
The emergence of third-party vendors that target specific aspects of the audit process, from data collection to client portals, has allowed even small firms to keep up with the changes.
“I’m seeing increased use of data analytics, client collaboration tools and queuing systems that allow work to be distributed across the firm,” Jackson said.
For those looking to use technology to transform auditing, consider these five tips for effective implementation:
Set a technology budget and reward innovation. Firms should start by creating a technology budget and hiring someone, or even appointing existing staff, to serve as an “innovation champion.”
“If they really want to succeed in adopting new technology and being innovative, [firms] you definitely need to hire someone and make them your innovation champion, so that’s their sole responsibility,” Bowling said. “And if you can’t hire a champion, build innovation compensation into your firm.”
Encouraging innovation is done through bonuses and not by punishing employees who have administrative time to make the company better, Bowling says. Too often, companies measure employees solely by their percentage of billable time.
Firms that do not reward innovation are unlikely to have successful transformations.
As more firms adopt new technologies, others will be forced to catch up.
“They think if it ain’t broke, let’s not fix it, but they don’t realize it’s broken, so they have to fix it,” Bowling said.
Think long term. When planning and budgeting for innovation, businesses need to look beyond the current fiscal year.
“Successful practitioners envision where automation will benefit the next audit,” said Brad Ames, CPA, senior director of internal audit at Supermicro in San Jose, California. “Companies must deliberately set milestones two to three years in advance so that they can apply innovation to their future engagements systematically as a roadmap.”
Jackson encourages business leaders to look even further into the next 10 years.
“Let’s think 10 years from now to break free from the constraints of today,” he said. “And that’s hard to do, but the easier way is to look back 10 years and think about how much has changed.” If you’re wondering if the cost of technology is worth the benefits, look back at the past few years. Without tools like Zoom and Microsoft Teams how would we survive?”
Manage expectations about what technology can do. Introducing new technologies into auditing can be risky.
If auditors rely too much on technology, they risk accepting the results without further analysis or investigation. SAS no. 142 provides guidance on reliability, noting that the reliability of audit evidence “depends on the nature and source of the audit evidence and the circumstances under which it is obtained.” SAS no. 142 requires the auditor to assess the reliability and relevance of the information.
“As auditors we need to understand how the technology works so we can see the results and be able to make judgments about what’s coming out of these AI-driven technologies,” Jackson said.
In addition to maintaining professional skepticism with new tools, Bowling argues that auditors should also avoid underreliance on technology.
“I feel like in my world there’s no more reliance on technology, meaning people don’t use technology, or they adopt something, but they don’t fully integrate it into their audit processes,” she said. “They don’t take the time to really understand the capabilities of the software and how it changes what they do.”
Take a holistic approach to transformation. Jackson uses the example of Edison and the light bulb to illustrate the importance of thinking holistically about technological implementation.
“It wasn’t really the light bulb that was the genius, but all the infrastructure and ways of power distribution that were needed to get people to switch from kerosene lamps to light bulbs,” he said. “You have to think about it holistically. We need to make sure our people are properly trained to use it [new technology] and understand how results are derived. How do we get our people on the road?”
Another key consideration when adopting new tools is compatibility with clients. Some clients, for example, may still be using legacy ledger systems that are incompatible with new cloud-based systems.
“Understanding what your customers are using and how compatible that is with what’s out there is something people should definitely consider before adopting a new technology,” Bowling said.
And when your business decides to implement a new tool, you need to communicate all the changes the technology could have for employees, customers, vendors and other stakeholders.
Use technology to empower auditing. Technology has the potential to save auditors time and steer them in the right direction, but Bowling argues that firms should take advantage of new tools to completely transform auditing.
“The problem is that most people are using technology to do the same thing they’ve done before, just faster,” Bowling said. “With the technology we have today, it should transform what you do.”
As technology takes over the routine work of collecting and cleaning data, auditors can spend more time determining what the data and evidence mean. This means auditors can make better informed decisions and deliver key information and necessary reports to clients more efficiently.
According to Bowling, the new technology has helped reengage her team in the audit process.
“For once, the audit for my staff is exciting, and that’s a huge benefit,” she said. “With new technology, they’re seeing things they’ve never seen before, especially with data analytics and artificial intelligence. They understand why the steps are important and actually get guidance on where to go based on the technology.”
— Hannah Pitstick is a content writer at the AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or suggest an idea for another article, contact Courtney Wien at Courtney.Vien@aicpa-cima.com.
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