8 minute read 15 Oct 2020
EY - Woman rock climbing

Three lessons in resiliency from the data-driven audit

Authors
Bill Strait

EY Americas Deputy Vice Chair, Assurance

Dedicated to leveraging people, process and technology to improve audit quality. Inclusive leader. Passionate about client service. Proud Texan, husband and father.

Jim Estes

EY Americas Vice Chair — Professional Practice

EY Americas Assurance leader with more than 30 years of experience. Committed to helping teams and individuals reach their potential. Husband, father of two sons and baseball and outdoor enthusiast.

8 minute read 15 Oct 2020

This article tells you how the independent auditors used technology to tackle the challenges presented during COVID-19 shutdown.

In brief

  • The right technology can streamline project management.
  • Analytics can help audit teams and clients focus on key issues.
  • A data-driven audit is a higher-quality audit.

Knowledge is power, learning is everything and the challenges of this year have given us some very important lessons that we are now applying to execute audits in a radically transformed market. As independent auditors, what’s our key takeaway from the COVID-19 shutdown?

The data-driven audit – one that relies on the analysis of full populations of our clients’ data, rather than on statistical sampling – is profoundly resilient. And resiliency is something we’ll need a lot more of from here on out as we continue to drive improvements in audit quality.

We are seeing audit teams tap into the power of data to analyze business processes and test the effectiveness of internal controls with greater clarity than ever before and to identify risks in real-time. As we look ahead to the 2020 year-end audit, data and technology are clearly the keys to high-quality auditing, which promotes high-quality financial reporting.

Looking back, looking forward

This spring, at the same time as COVID-19 suddenly disrupted the normal accounting and reporting cycle for companies everywhere, economic turbulence underscored the critical importance of trustworthy and readily available financial information for investors and other stakeholders. If the world was going to recover from the pandemic, our capital markets had to remain transparent and fluid.

Here at EY US, our teams adapted nimbly to auditing the first universal “remote close.” We moved quickly to support a stay-at-home work environment, making everything from requesting an additional monitor to leveraging visualization tools for complex analytics as easy as possible.  Most importantly, the data-driven, digital audit technologies that the EY global organization has developed over the last decade meant that our auditors had the infrastructure they needed to deliver high-quality virtual audits.

But COVID-19 was a new kind of test and it underlined the need for infrastructure and a culture to reinforce each other. It was our people and technologies together that allowed us to maintain high standards for audit quality, performance, reliability and security at a moment of disruption.  As we look ahead to the new normal, we are building on that experience to strengthen the data-first mindset in our teams to drive quality audit execution.

It was our people and technologies together that allowed us to maintain high standards for audit quality, performance, reliability and security at a moment of disruption.

Lesson 1: The right technology can streamline project management and enable real-time communications and consistent execution in a virtual environment.

The challenges of the first “remote close” were not just about executing audits in a virtual environment. They were also about having the agility to adjust our audit approach in response to a drastically altered business landscape, continuing to identify risks and to meet key deadlines and filing dates.

The efficiencies created by our online audit platform – EY Canvas – proved to be crucial here. With EY Canvas, audit professionals at EY member firms around the world are trained to work with the same technology and use it every day to manage their audits consistently. Because of that training, EY Canvas allowed our people to move without a hitch to operating remotely as COVID-19 hit.

The platform also enables our auditors to communicate a centralized plan for the audit and to monitor progress in real-time. The project management capabilities built into EY Canvas empowered teams to continue meeting important milestones during the shutdown. As one Global Client Service Partner involved in leading technology company engagements put it, “In the past, I would have to be sitting in a room with 40 people to truly understand where we are. Now, I can refer to my EY Canvas dashboard, take a quick inventory and without our having to huddle up next to each other in a conference room, get the same insights.”

Our technologies also improved the audit experience for our clients, allowing them to monitor the status of audit requests and respond quickly to queries from our professionals. For some of our clients, the COVID-19 shutdown immediately provoked apprehensions about how audit teams were going to safeguard their most sensitive financial information while working from home. They found reassurance in our EY Canvas Client Portal, which allows companies to upload files securely so that they can be accessed by the audit team. Using the EY Canvas Client Portal also eliminated one-off emails and reduced repeat requests and duplicate work on the client side. Consequently, they were able to focus on the issues that mattered.

The technologies at our disposal – and our ability to use them well – allowed us to keep delivering consistently excellent service to our audit clients, even as the world around us changed overnight.

Our technologies also improved the audit experience for our clients, allowing them to monitor the status of audit requests and respond quickly to queries from our professionals.

Lesson 2: Analytics is helping audit teams – and audit clients – focus on key issues raised by the pandemic.

Of the large public company audits we executed in the US for 2018 year ends, nearly 90% leveraged the General Ledger Analyzer in our EY Helix suite of data analytics. So, we already had a fined-tuned process in place for global remote data capture and extraction, and our teams had already adopted a data-first mindset. 

Reframe that process in a global public health crisis and our ability to capture full populations of data using our analyzers proved invaluable. For example, for one retail client, the audit team had captured broadscale data on assets for all its retail outlets in Q1, though only a few were impaired at the time. When the client faced challenges across their entire fleet of stores due to the pandemic shutdown, the audit team had the relevant data readily available to enable the team to evaluate the company’s impairment analysis effectively. In today’s rapidly changing environment, that is vital.

With EY Helix, our EY global organization has created a powerful suite of data analytics. Grounding our audit procedures in analytics enables EY teams to better identify potential risks. Hidden patterns and trends in our clients’ financial data are revealed that wouldn’t be apparent in a traditional audit, allowing us to direct our follow-up efforts to the right areas and enabling our clients to consider new ways to improve their business processes and controls.

For example, at a moment when many clients are extremely concerned about optimizing their workforces, our analytics flagged payroll cost anomalies for one client that included some workers who were regularly clocking 20 or more hours of overtime a week. This allowed the client to assess not only the approval process for that overtime, but also spurred discussion about the implications for employee health.

For another client, our team conducted a trend analysis on the basis of historical costs of manufacturing a product, which suggested the future profitability of the product. That insight was valuable for the audit committee at a time when they were re-evaluating all aspects of the business.

The advanced analytics underpinning the digital audit can inform new strategies, as well as pinpoint risks. That’s a compelling proposition as organizations everywhere shift course.

At a moment when many clients are extremely concerned about optimizing their workforces, our analytics flagged payroll cost anomalies for one client that included some workers who were regularly clocking 20 or more hours of overtime a week.

Lesson 3: Confirmed: a data-driven audit is a higher-quality audit.

During COVID-19, our digital audit platforms have proven vital to completing our mission as independent auditors with accuracy, security and timeliness. The question is: how can we use this experience to propel us into the future and encourage the evolution of the independent audit?

Given the many ways that COVID-19 has changed the world, it’s essential that our audit teams bring objectivity and a skeptical mindset to the audit – a commitment to see old processes with new eyes. This is something data can catalyze, as audit teams use first-quarter or early-year data to develop a comprehensive audit plan that focuses on the risks that matter.

For example, incorporating the Helix Analyzer reports on general ledger and subledger data into risk assessments helps EY teams to better understand the sources of transactions and the flow of transactions. This allows EY teams to ask much more probing questions about areas where material misstatements are a possibility and the controls used to prevent them. Using a data-first approach can inform walkthroughs and make sure that our teams capture all the critical risks. This is particularly relevant when walkthroughs need to be conducted virtually. A data-first audit enables the audit team to develop a more holistic view of business processes by enabling teams to see the correlations between multiple accounts. Finally, a data-first audit is also a “continuous audit”, which allows companies to respond to findings by making an immediate course correction rather than waiting until the year-end. It gives the companies we audit more transparency upfront into the scope, nature and intent of the audit. 

We know that data can challenge assumptions and present inspiring new perspectives. Building that in at the front end allows the auditor to deliver value in real-time throughout the audit cycle.

A data-first audit is also a “continuous audit”, which allows companies to respond to findings by making an immediate course correction rather than waiting until the year-end. It gives the companies we audit more transparency upfront into the scope, nature and intent of the audit.

What comes after what’s next?

Like everyone, we’re still absorbing the knowledge gained from working through the pandemic. We are adapting our plans for the year-end audit in an uncertain environment. Our clients are addressing the complexities in accounting and corporate reporting resulting from the pandemic and recession. But one thing is certain: a data-first approach is the key to delivering an audit that is responsive to the ever-changing risk profile of our clients and the demand for a continuous audit process. 

At EY, our clients and our audit professionals alike are emerging from this experience with a new appreciation for the technologies enabling the digital audit. We are seeing that data-driven procedures can bring insights to management and audit committees that enable them to be proactive in investigating issues and addressing risks.  As our teams expand their use of technology to take advantage of the power of using data first, the quality of the financial reporting that companies are able to deliver to the marketplace can soar.

Summary

During COVID-19, our digital audit platforms have proven vital to completing our mission as independent auditors with accuracy, security and timeliness.

About this article

Authors
Bill Strait

EY Americas Deputy Vice Chair, Assurance

Dedicated to leveraging people, process and technology to improve audit quality. Inclusive leader. Passionate about client service. Proud Texan, husband and father.

Jim Estes

EY Americas Vice Chair — Professional Practice

EY Americas Assurance leader with more than 30 years of experience. Committed to helping teams and individuals reach their potential. Husband, father of two sons and baseball and outdoor enthusiast.