Without fail, some of the top questions CPA firms are asked by clients during the audit process are “When will you be finished?,” “How much longer are you going to be here?” or “Where do we stand?” While these questions may seem harmless, they actually provide meaningful insight into a client’s frustration with what can be a burdensome audit process.
Lenders and outside shareholders typically require financial statement audits and, consequently, many companies must balance running their day-to-day business while still working through their annual audit. I believe much of the frustration lies within the process itself. Lengthy audit requests lists, a significant number of questions and teams of strangers camping out in the conference room with no visible end in sight are a commitment that often tests the patience of the most experienced CFOs and business owners.
This frustration causes companies to view audits as commodities as very few CPA firms have brought innovation and value-added insights to the audit. Fortunately, many CPA firms have embraced significant investments in technology to reduce the disruption of the audits and enable them to focus on providing additional value that clients expect from a trusted business advisor.
How cloud-based workflow platforms minimize disruption during your audit
Among the best advances in technology that have allowed auditors to streamline the audit process has been the implementation of cloud-based workflow software. This type of platform has allowed stakeholders to proactively manage information requests and provide timely feedback as questions arise during the audit.
Here are the top 6 advantages you can expect when your audit is managed through a cloud-based workflow platform:
1. Security –
The ability to distribute information requests in a secure and encrypted manner, reducing risk to both the client and the CPA firm. Prior to the use of these platforms, information was distributed by means that many consider insecure in today’s environment.
2. Accessibility –
Information requests and provided documents are stored in a central location that is easily accessible by all approved team members.
3. Efficiency –
Simple, user-friendly interfaces that typically allow for drag and drop functionality where you can easily transmit account reconciliations, copies of significant operating agreements or other documents into the online request included in the listing.
4. Reporting –
Reporting capabilities that give you the option of receiving periodic email updates that track the status of the audit, unfulfilled requests and provide immediate insight into open items or new questions/requests.
5. Visibility –
Full visibility of your historical documents allowing you to review and recreate reports provided during prior year audits, cutting down on your current year’s preparation time.
6. Flexibility –
The ability to access information at any location and time may provide opportunities to perform portions of the audits remotely. This is allowing large or decentralized businesses to reduce or eliminate the need for travel by their CPA firm.
Using AI to maximize audit effectiveness and client value
While leveraging workflow solutions will help reduce the burden of the audit, accounting firms are also utilizing other technologies to innovate a process which has been historically slow to change. The accounting industry is actively working to overcome a perceived lack of value creation delivered in the audit. Often, the most common value-added comments resulting from the audit relate to internal control and financial reporting deficiencies, which are important but may not provide the deep insight desired by management into the company’s operations or the ability to achieve its business objectives.
Many CPA firms are beginning to use artificial intelligence (AI) in the audit process to increase the overall effectiveness of audit procedures.
Here are 5 key areas in which AI is innovating the audit:
1. Analytics –
The use of AI enables auditors to develop more robust analytics about the companies and the industries in which they operate by analyzing large and complex data sets. For example, AI could quickly provide analyses of gross margins by customer, product or service, which would otherwise be extremely cumbersome or impossible to compile using traditional reporting tools. These results can provide management with enhanced insight into their product mix and areas for improvement.
2. Transaction Volume –
As businesses have evolved, so have the complexity and volume of transactions. Another benefit of many AI tools is that they allow auditors to perform analyses on entire populations of data (100% of the general ledger) versus sampling, in which sample sizes are based on judgmental factors such as materiality and risk determined in the planning process.
3. Transaction Complexity –
The ability to analyze the general ledger in its entirety increases the overall effectiveness of audits and allows professionals to focus on transactions or higher risk areas that require significant judgment. For example, a CPA firm recently used AI to identify several unusual, off-cycle payroll transactions that otherwise may have gone undetected. While these transactions were determined to be appropriate and not an instance of fraud, the Company’s CFO was able to implement increased controls in this area for future off-cycle payrolls.
4. Machine Learning –
AI has been able to assist companies and CPAs with analyzing complex and evolving issues affecting the profession. Some examples include IBM’s Watson and Microsoft’s Cortana, which have been able to use machine learning to scan and interpret the key components of contracts and leases and applying the provisions of forthcoming accounting pronouncements related to revenue recognition and leases. There are other anticipated uses for AI including assisting with tax filings and monitoring of transactions that appear to be abnormal or fraudulent.
5. Blockchain Technology –
Another anticipated benefit of AI is the potential to use blockchain technology to independently validate B2B transactions with customers, vendors and lenders. The days of filling out confirmations and sending to customers and lenders may eventually become extinct with the adoption of AI and blockchain. While each these technologies are in the early stages of development, it is anticipated that AI will transform the audit process as we currently know it.
Setting the Stage for the Future
Advances in cloud-based and AI technologies are rapidly changing the status quo of how CPAs work while also reducing the strain that audits have on accounting and finance departments. I see the best CPA firms working to be at the forefront of this transformation, and the results should allow for enhanced audit quality and a renewed focus on driving client value.
Christopher Fagan is a Director in Moore Colson’s Business Assurance and Consulting Practices. He serves as an advisor to clients in many areas including private equity funds, investors, debt financing diligence and advisory projects focused on inventory valuation and controls, consulting, assurance and transaction services.