How Will Technology Transform Auditing?

technology transforms accounting firms

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How Will Technology Transform Auditing?

technology transforms accounting firms

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For what seems like decades, we’ve been hearing about how technology will completely transform the accounting industry. And if you think about it, in some ways, it already has. So much of what we do is now online, using web-based applications rather than our desktops or by hand. Many of our transactions now occur using our phones, making it much easier to do bank reconciliations and generate reports. And many clients now take advantage of online portals where they can upload information for their accountants, then download the requisite forms for electronic signature.

So, what can we expect next in terms of technological transitions?

In this article, we focus on the audit side of the accounting profession. This is where a good deal of buzz started, but not as much movement as predicted. The biggest challenge is how audits are conducted, and files are collected, making the information difficult for automation, artificial intelligence (AI), or machine learning (ML) to access and manipulate. Think about it, when we collect files from a client for auditing purposes, they are typically hard copies, PDFs, JPGs, or other files that can’t be manipulated and recategorized by a program. Even in the largest and most advanced firms, the audit process is still very manual.

Ultimately, we will need a few things to happen for a proper transition.

Programming the systems

It will take a long time before we reach singularity – where AI is more intelligent than people – but it is expected to happen in phases. First, we will need to program software robots or “bots” so these applications can recognize patterns and files. In essence, we will need to “teach” the system how to do the entry-level, repetitive, time-consuming work.

This is similar to some of the automation rules that already exist in programs like Xero or Quickbooks. They are set to recognize and automatically suggest how to categorize specific transactions. For example, you can have your bookkeeping software automatically record transactions with gas stations (e.g., Chevron, Shell, etc.) to the mileage, gas, and tolls expense account. Someone, at some point, added that automation rule to those systems. We have this technology now; we just need to create the programs to work for audit like they currently do for bookkeeping.

Cooperation between applications

Right now, there is little consistency between the major accounting and auditing applications, and for automation to really take hold, this will need to happen. The programs we use every day – Quickbooks Online, Xero, Sage Intacct, NetSuite, etc. – all use different coding systems. In a perfect world, they would all adopt the same coding system so information can be easily integrated regardless of which system is used. Just that one change, which admittedly is a big one, would streamline our auditing system exponentially. But right now, there is too much money to be made in the fintech industry, and too many people who are concerned by the idea of AI-enabled audit, for this type of collaboration. While the technology is ready to go, people must program and operate much of it. Many current practitioners and firm leaders are not yet willing to change, even if these advances will ultimately make their lives much easier and their firms more profitable.

Evolving accounting curriculum

As the accounting profession – and more specifically auditing – advances, the curriculum taught at universities must change as well. The obvious shift will be to include more technology classes and programming instruction. But even more importantly will be the addition of complex problem solving, critical thinking, and cognitive flexibility. While the work of auditors is often considered to be very left-brained and structured, much of the rote work will soon go the way of the abacus in lieu of higher-level consulting.

According to the most recent Accounting Program Curriculum Gap Analysis Report, collegiate accounting programs aren’t yet adequately covering topics like cybersecurity, predictive analytics, and Systems and Organization Controls (SOC). Unless they change soon, these programs will not adequately prepare graduates for the job they will be entering. Additionally, a knowledge of these skills will be required to pass the new Uniform CPA Exam in 2024, so time is of the essence.

Differing roles within firms

One of the most common reactions when talking about these technological advances is the concern that it will eliminate the jobs of humans. In some cases, it may. More likely is that jobs will need to adjust to meet the needs of the new way of conducting audits. Accountants will spend more time documenting and developing systems, and programmers will play a larger role within firms than they currently do. As the profession progresses, accountants will be much more tech-savvy 20 years down the road, just like current practitioners are quite different than 20 years ago.

When will these changes start to take root and transform how audits are conducted? We see the tipping point coming in one of two ways, or a combination of both:

  1. A disruptor will enter the market and show how incorporating AI will make audits much easier to conduct, and more accurate, due to this advanced way of processing information. Audits are all about looking for patterns, which machine learning does very well. Where we now pull random samples to look for anomalies and fraudulent behavior, AI can scan all the documentation and pull the outliers for an auditor to examine.

  2. Firm clients will start insisting on lower prices for their audits. As this technology gets more press coverage and clients learn about it, they will start expecting their auditors to take advantage of it. Those firms that insist on sticking to manual methods will eventually be priced out of the market as a savvier client base starts expecting more streamlined audits.

Regardless of how it happens, it is only a matter of time until companies that require audits start seeing the value in streamlining the audit process, decreasing the time it takes to conduct one, and lowering the cost as well. Those firms that are ready will stand head and shoulders above their competition and attract new clients like never before. Is your firm ready?