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This article was first published in the January 2016 Asia Pacific edition of Accounting and Business magazine.

Put the average audit team – overworked, under pressure from clients and mired in the complexity of the audit – together with the abstract and potentially complicated technological tools of big data and data analytics, and you might expect a resounding rejection from all parties.

But when one Big Four firm launched a massive global programme to digitise the audit process four years ago, the response from audit teams was not rejection. It was enthusiastic approval.

‘To my surprise, the teams loved it,’ says Felice Persico, EY’s global assurance leader, who is closely involved with the global programme’s development and implementation. ‘Clients are impressed. They like the new audit experience.’

The use of analytics in audit is not an entirely new thing. For decades, analytics have been used here and there in the audit process, but it is only in the last few years that new technological advances have offered firms an opportunity to rethink the way they use analytics. The new paradigm, according to Persico, involves not just using analytics as a supplementary tool, but embedding it in every step of the audit and across the entire audit cycle.

EY is also in a unique position to do this: the firm employs a globally integrated business model that allows it to simultaneously deploy new tools and processes across every part of the organisation. This means that all EY’s audit teams around the world are able to use analytics in the same way, giving clients a more consistent audit experience.

Rolling it out

The main reason for employing analytics in audit, says Persico, is to enhance assurance. ‘The quality of audit over the years has been very volatile,’ he admits. ‘Embedding analytics in audit is one way to stabilise audit performance and make it sustainable over the long term.’

Analytics allows audit teams to manage a much larger population of relevant data, thereby improving risk analysis, with the ultimate goal of increasing investor confidence. This potential gain in audit quality was sufficient motivation for EY to invest a whopping US$500m into transforming its audit, even before big data had become the buzzword it is today.

Taking centre place in this digitisation drive are EY Helix, a full suite of analytics tools, and EY Canvas, a global audit platform that lets audit teams around the world align their methodology. Both tools can be accessed on a range of devices including laptops, tablets and smartphones.

As with every large project, especially one involving new technology, the implementation was not without issues. Data access and data security emerged as major complexities, especially in relation to the regulatory landscape. Teams and clients alike had to be educated about the need for security and the importance of privacy.

The volume of data also became problematic: unlike regular analyses, which can be run off a notebook computer, big data requires capacity, especially when multiplied by the number of clients a firm serves.

‘We were able to handle the issues through a rigorous and disciplined approach, what I call implementation excellence,’ says Persico of these obstacles. ‘Projects like this require a big investment in people, processes, and technology at a global level.

In general, he notes, new technology at the auditor’s end poses no additional risk compared to what the company may bear in the course of business. As the profession is already a disciplined one with high awareness of confidentiality and data security, implementation challenges have tended to be more technical than operational.

A warm reception

So far, both audit teams and their clients have been pleased with the new tools and methods.

‘The teams using EY Canvas gave feedback that it was faster, simpler, transparent, and enabled project management,’ says Persico. ‘My favourite description is “transparent”. In the past, audit was called the black box: teams took the work papers and disappeared into the office with them, and from there no one heard anything until the work was over.’

Now, data analytics tools provide a level of transparency that audit teams have previously had difficulty achieving. Because all the information is online, the team can have a complete overview of the process, including access to all work papers. Audit evidence can be more effectively reviewed and communications are clearer.

At the same time, the new tools provide auditors with an increased level of business insights and understanding. The improved access to data lets teams fine-tune their analysis, identify areas of concern and adjust the process where appropriate. Furthermore, it allows a specific, tailored approach for each client, one that focuses better on the important risks.

This improves client dialogue and, in consequence, the all-important professional scepticism that is so vital to audit quality.

‘Younger generations expect the technology,’ Persico says of the excitement EY’s audit teams have displayed about the changes. ‘The new generation in particular is hugely responsive to digitisation. When you take people fresh out of school and college and put them in this new technologically based audit, there will probably be fewer barriers [to their understanding] compared with traditional audit.’
Clients, meanwhile, have commented that they are better able to see what risks are really important and can gain more insights into their own business.

‘Having seen all the data, they feel more secure,’ says Persico. ‘This includes the audit committee, the board of directors, management, investors, the community – all stakeholders.’

Interestingly, while responses to EY’s new take on audit have been positive, the level of reaction has varied around the world and is driven largely by regulation. In Europe and the UK, for example, mandatory rotation means that companies are highly focused on value propositions when selecting new auditors. Hence, the use of analytics and other innovations represents a significant competitive advantage in these markets and is eagerly embraced.

In contrast, the US market lacks the push for constant change and is hence more stable. So, while innovation is still accepted, it is less of a driving force.

A more relevant profession

Analytics has already improved the audit experience for clients, and it should improve the day-to-day experience of auditors too – ideally relieving some of the stress inherent in the profession and making the work more interesting, with a consequent impact on talent attraction and retention.

More importantly, there is potential for analytics to increase the profession’s relevance. In times to come, Persico speculates, analytics will be embedded in day-to-day audit, forming part of a continuous process rather than the current sporadic model.

The next step will then be to analyse data from inside the organisation and compare it with external data. Rather than focusing on historical financial statements as it does now, the audit process will compare a company’s current performance to the market and carry out a real-time analysis of what is happening in the company at present.

Taking that a step further, audit will become more future-focused: ‘Audit will evolve from looking at what has gone wrong, to real-time analysis of what is going wrong now. It will be about comparing current performance to the market and giving a better forward-looking projection of the future, and that, for me, is what makes audit relevant,’ he says.

Even as this happens, technology will continue to advance, driving further changes in audit, and firms will have to invest in continuous, sustained innovation to keep up. A 2013 study by the Oxford Martin School found that accounting and auditing are among the professions most likely to be disrupted by innovation and technology, and adaptation will be key to survival – not only for auditors and their clients, but also for investors, stakeholders and even standard setters.

And this is a good thing, according to Persico. ‘Technological disruption will help audit focus on areas that are more important to the investor,’ he says. ‘The future will be about things like risk analysis, cybersecurity, the ability of the company to detect fraud. Stakeholders will want more and different assurance. So I welcome the disruptions that will help audit move forward and make it more relevant to the future.'

Mint Kang, journalist