5 minute read 19 Oct 2020
What does the EY Digital Audit change for auditors and for CFOs?

What does the EY Digital Audit change for auditors and for CFOs?

By Eef Naessens

EY Belgium Assurance Partner

Trusted audit professional. Passionate about innovation and working with diverse talents. Digital audit influencer. Dedicated wife and mother. It’s fun to be me.

5 minute read 19 Oct 2020

Advanced audit analytics have not only become indispensable to a high-quality audit, they also bring more added value to the CFO.

Three questions to ask

  • How are advanced analytics used in the digital audit?
  • How does the EY Digital Audit provide greater value to the CFO?
  • How does the EY Digital Audit contribute to higher quality audits?

We are truly living in a transformative age. The world has seen massive digitization in the last couple of decades, and today more than ever, a wide variety of technologies and applications are literally at our fingertips. Companies too are adapting at an unprecedented pace to meet new demands and changing expectations. New technologies have created a data-rich environment providing an opportunity for the audit profession to undergo a rapid transformation, leveraging to an increasing extent from this growing amount of data.

Advanced data analytics & the EY Digital Audit

The untapped potential of data generated by new technologies drives the need for the continuous digitalization of the audit. At EY, we have invested heavily in the EY Digital Audit through which we are increasingly centralizing, standardizing and automating our audit process. In fact, the EY Digital Audit is our only remaining audit methodology. The EY Digital Audit also means: better connecting our teams with each other and with the finance teams of our clients, and going full gear with advanced audit analytics.

Process mining tools provide new insights

Reducing our audit risk generally starts with gathering detailed information on the administrative organization of the companies we audit, including the way they are organized, and how their processes internal control system is built. The International Standards on Auditing require at a minimum that an auditor is able to understand and describe the internal control environment and evaluates its design effectiveness. However, a financial year spans a massive amount of individual transactions, and using traditional means, we are incapable of testing them all. That is why auditors traditionally had to fall back on random sampling, to take only a sample out of a given set of transactions and to extrapolate the findings on this sample testing to the entire population.

Data analytics, however, allow us to scan an entire population of transactions and to highlight exactly “what went wrong” based on the data trail, little breadcrumbs so to speak, that people and applications leave behind in IT systems when processing transactions. No more random sampling and no more extrapolation, but a targeted control of all transactions and an identification of all exceptions.

As such, we are gradually evolving into an audit based on process mining techniques. Process mining software collects and structures those data breadcrumbs and translates them into valuable insights about a company’s processes. Process mining typically reveals that a company’s processes are much more complex than initially assumed and that they deviate far more from the textbook process as set up in the first place.

Process mining as a result provides us with new insights and contributes to the added value of the audit.

The untapped potential of data generated by new technologies drives the need for the continuous digitalization of the audit.
Eef Naessens
EY Belgium Assurance Partner

Automation and Artificial Intelligence

Audits require a constant gathering of substantive evidence. Therefore, we are continuously looking for ways to make the lives of our auditors more simple and at the same time more efficient. For example, by automating the remaining repetitive tasks using RPA (Robotic Process Automation). “Smart Confirmations”, for instance, is the automatic sending and coding (or QR coding) of client and bank confirmations. This replaces the traditional folding of confirmation letters. And there is many more to come. Step by step, the potential of real-time auditing is revealed. The PSD2 regulation also allows auditors access to bank account records so that they will no longer need to check individual bank statements, because every cash movement is automatically scanned and connected to an accounting transaction. Finally, artificial intelligence is increasingly used to read contracts and find patterns in data, and it sets the scene for predictive analytics in the near future.

The changing role of the CFO

An audit based on data analytics techniques does require a different effort from a company’s CFO. Firstly, the CFO needs to be able to provide the auditors with more and better financial and operational data. Secondly, CFO’s need to gain a broader knowledge of the general ledger to enhance their own reporting processes. Thirdly, they need to increase the availability of different types of data in a digital format. And lastly, finance and IT teams should be encouraged to share information and system access with the audit team.

Step by step, the potential of real-time auditing is revealed.
Eef Naessens
EY Belgium Assurance Partner

Better responding to a CFO’s needs

At the same time, the EY Digital Audit creates a higher added value because of the digital customer experience. The data provide our clients with new and more valuable insights: they simply show where the internal control environment needs adjustments in order to become more effective, but also where and how processes can be simplified. The EY Digital Audit also offers our clients the advantage of having to spend less time on delivering audit information, thereby reducing the total cost of ownership. Finally, we believe that the EY Digital Audit can help our clients to make better use of their investments in processes and IT systems.

The advantages of the digital audit summarized

  • Our clients spend less time on delivering audit information, thereby reducing the total cost of ownership
  • Our clients can make better use of their investments in processes and IT systems
  • No more random sampling and no more extrapolation, but a targeted control of all transactions and an identification of all exceptions
  • New and valuable insights from the analysis of an entire population of transactions
  • Automation of repetitive tasks frees up time for the auditor to focus on those areas that carry the higher risk
  • It offers a more efficient and controlled risk analysis, providing better audit quality

This does not mean that audit services are or will be led by robots. The professional judgment, experience and sector knowledge of the auditor remains essential, and these are the exact elements that fuel a smooth integration of advanced technology in those areas where technology can make the biggest difference. Instead of replacing the role of the auditor, digitalization changes and strengthens it. The data are providing audit professionals with more reliable and detailed insights so that they can more effectively apply their professional skills resulting in more added value and higher quality audits.

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Summary

Auditors are increasingly making use of advanced data analytics and other digital solutions to strengthen and even replace traditional audit methods. At EY, almost every audit involves data analytics. The result: a more detailed risk analysis, a lot of new valuable insights and a higher audit quality.

About this article

By Eef Naessens

EY Belgium Assurance Partner

Trusted audit professional. Passionate about innovation and working with diverse talents. Digital audit influencer. Dedicated wife and mother. It’s fun to be me.