Technology is transforming how companies do business and exposing them to new risks and opportunities. It is also ushering in a new era of audit. Thanks to the emergence of powerful new tools and techniques, technology in the audit now has the potential to provide companies with greater levels of assurance and unprecedented insights. So what is the impact of technological advances on the audit committee?
The real game changers are the new technologies that are being applied to the audits themselves, because of the far-reaching insight they offer to audit committees. Data analytics, in particular, is transforming the way that audits are conducted, because it enables auditors to move away from auditing small samples of data to auditing large samples, or even entire datasets.
“In the past, we would have tested a sample of data to see whether people were complying with the travel and expenses policy, for example,” explains Dave Dillon, Chair of the audit committee at multinational conglomerate 3M and US railroad franchise Union Pacific. “Now, in the digital world, most companies can get every single expense report reviewed because the additional cost of doing that is so small.”
Another powerful use case for data analytics is in fraud detection. Julie Brown, COO and CFO of luxury brand Burberry and Audit Committee Chair for pharmaceutical company Roche, explains: “With journal postings, for instance, you can search for entries over weekends, outside normal business hours, or by staff who wouldn’t normally make them, to pick up signs of fraud or manipulation of the accounts.”
She continues: “With data analytics, an auditor can identify risks very easily and tailor the testing to do recalculations of higher-risk areas. So, in retail, the auditor could use analytics to recalculate an expected stock provision based on the aging of stock. It could then compare that with the stock provisions the client has put in place. So it’s a good way of doing top-down analytical checks on data.”
Nasser Munjee, who is Audit Committee Chair for five Indian companies, confirms this. “The role of financial control, as well as internal audit, has been vastly improved by the use of technology over the last three to four years,” he says. “It’s brought much more oversight and predictive oversight.”
Undoubtedly, data analytics is giving audit committees access to valuable insights that they never had in the past. “We can assess the results of data analytics to understand why something has happened,” says Dr. Maurice Ngai, Audit Committee Chair of China Communications Construction Company and other listed companies in China. “Then we can question management.”
“Data analytics is helping higher-quality discussions to take place between the audit committee and the auditor,” notes Andrew Gambier, Head of Audit and Assurance at global accountancy body ACCA, “and anything that helps the audit committee to reflect upon their own independence and their role in governance is extremely helpful.”