One of the technologies that is having the biggest impact on the audit today is data analytics – the technology that discovers and analyzes patterns, deviations and inconsistencies in data. This enables an auditor to analyze an entire population of data rather than simply rely on a sample of data, which has been the traditional practice. As well as being more accurate than sampling, thus allowing the auditor to make better-informed risk assessments, analytics also supports monitoring that can be carried out remotely instead of on the client site.
“When you can analyze full populations, you achieve much higher audit quality than you do with sampling,” says Hermann Sidhu, EY Global Assurance Digital Leader. “The data tells a comprehensive story that the sampling approach may not have caught in the past. You can also take insights back to the client.”
For example, the new lease accounting standard has had a significant impact on the audit, and this is an area where analytics is really proving its value – especially on the audits of large, international groups. These may have thousands of contracts around the world, in different languages, that they need to report on their balance sheet. Locating all these contracts would be a huge – if not impossible – task for humans. But analytics can be used to scan the relevant data sets from a company’s procurement and legal teams to determine whether a document appears to be a contract, and whether there appears to be an embedded lease contained within that contract. Then AI reads through the relevant contracts and applies judgment, on the basis of its knowledge of various legal terms and phrases, to extract key information about leases.
“This technology follows the same process that we’ve used for 15 years with legal document review,” explains Jay Sonbolian, Principal at EY LLP’s Forensic Technology and Information Governance service. “Whenever there is litigation or an investigation, there is a massive amount of data that needs to be reviewed. We’ve written algorithms that are able to mimic the type of review decisions that attorneys are making on those legal cases.”
In the future, the audit process is set to be further transformed by so-called “deep learning,” a form of AI that can be trained to recognize patterns in vast volumes of data, including unstructured data such as emails, social media and conference call audio files. By mining this ocean of data, auditors could gather supplementary audit evidence on a scale that was never possible before.
Deep learning has proven to be very effective in understanding and analyzing unstructured data. For example, it can help auditors review contracts more efficiently by pointing to a few relevant clauses within a 500-page contract. It can also produce continuous improvement in results and become more relevant over time. “By connecting this technology with a large volume of unstructured data and the expertise of subject matter experts, deep learning provides huge opportunities for finance departments and professional services,” says Jeanne Boillet, EY Global Assurance Innovation Leader. “It is estimated that 80% of the world’s data is unstructured, so the opportunity is huge.”
As the nature of audit evolves, so the skillsets of auditors are evolving, too. Finance functions and auditors alike are changing their people and talent mindset, encouraging innovation, and trying to create a culture of trust, in order to accelerate the adoption of new ideas.
“We are building more diverse teams, which we call ‘suits and jeans’,” explains Boillet. “This is where we want to take the best of the traditional way of working, our people’s experience, expertise and knowledge, and mix that with the new generation – the ‘jeans’ – who are more open to doing things differently and questioning why have we been doing things a certain way.”
Sharon Virag, Vice President, Controller and Chief Accounting Officer of health care company Aetna, agrees. “The world is changing fast, which means finance professionals have to be very flexible,” she says. “Over the past couple of years, we have used training and leadership messaging to revamp the culture of finance with the goal of introducing flexibility and an innovation mindset. We take the view that we must all grow together toward our future state.”
Overall, the development of audit technology is enabling a much more forward-looking process. “In the past, our audit was mostly focused on the past – what had happened and what we could do to limit potential risk,” Boillet explains. “In the future, we will be able to build scenarios, anticipate what will happen and alert a business to trends so that it can adapt ahead of potential changes.”
NB: Since the interview with Sharon Virag took place in October 2017, she has left her role at Aetna.