Today, breakthrough innovations like augmented and virtual reality, artificial intelligence, and blockchain have the potential to disrupt commercial markets and impact many areas of a company’s business. No sector of the economy is immune to these changes.
This rapid speed of change means that companies across multiple industries need to be prepared to act and should consider having processes in place to help their organization respond in real-time.
What many companies don’t realize, however, is that audit is taking advantage of innovation and they can benefit from that in the audit process.
The business case for audit innovation for private companies
I recently had the chance to attend FEI’s Current Financial Reporting Issues Conference in New York City to talk about the audit innovations available today and how private companies might benefit from them.
New innovative tools are being used in the audits of many large public companies today. However, it is important to note that the latest audit tools are also available to and scalable for private company needs, and offer significant benefits to this segment of the market.
So what are the benefits of an innovative audit for private companies? Generally, audit innovations and tools can enhance the quality, efficiency and effectiveness of audits – for both private and public companies – and can reduce the time needed from the company and its staff by providing more digitized interactions and streamlining processes. Companies may spend less time with their auditors – meaning less time looking backwards – and spend more time looking ahead and planning for their future.
When we think about the benefits innovative audit tools can bring to companies, there are many possibilities, including freeing up time company personnel previously would have needed to spend working with their auditors to now spend more time pursuing other strategic initiatives of the business and working towards future goals. Overall, private companies can expect more value from their audits.
Even the most streamlined organizations can benefit from cutting-edge audit tools. The following are some of the specific audit innovations that can help private company leaders navigate disruptive change and generate business insights to consider.
The audit disruptors
Technology disruption comes in many forms to the audit: artificial intelligence, big data and analytics, cloud computing, mobile, and robotic process automation.
A few of the innovations we currently see as having a significant impact on private company audits include:
- Artificial intelligence (AI)
Artificial intelligence leverages cognitive technologies such as advanced machine learning and natural language processing to perform tasks that traditionally have been performed by humans. The technology can be applied to a variety of audit tasks. For example, AI enabled audit tools can be used to quickly process, highlight, extract, and summarize key information from electronic documents so that auditors can focus on matters of audit interest. From here, the auditor can identify outliers and provide companies with meaningful insights to consider.
Audit teams often need to read through contracts page by page to identity pertinent information which can be a very time intensive process. Now, however, AI-enabled audit tools can be deployed to read these documents, apply rules-based learning to identify matters of audit interest – e.g., outliers or changes that have been made to what the company would call “standardized contract terms” – and then produce a summary so the auditor can focus and direct attention accordingly.
For example, a large REIT may have 200,000 lease agreements. Without AI audit technology, an auditor would typically select a sample population of leases to review. However, now it’s possible for auditors to apply AI technology to review all leases within the population for similarities and outliers – the output for which might be a scatterplot that looks something like “the Milky Way” with a grouping of linear and outlier “stars.” In the end, only a small percentage may ultimately be flagged for further review.
Companies of all sizes often have numerous documents that need to be reviewed during an audit, so the ability to apply AI to automate much of the review and analysis can significantly enhance quality, effectiveness, and efficiency.
Audit has begun leveraging big data and analytics to analyze large data sets to reveal patterns, trends, and relationships.
To analyze a population, auditors often select a sample of the population to work with. Using today’s technology, however, auditors have the ability to look more holistically at full data sets and conduct statistical analyses using analytics. This can help auditors to identify outliers quickly and drill down into them.
Let’s say a telecommunications company with a very large number of cell towers records those towers on their books and records as assets at net book value. The auditor may identify a risk around whether or not these towers are still in use and therefore appropriately recorded. Using current technology, it’s possible to apply big data and analytics in an audit to capture historical usage, associated expenses, and net book value. This can enhance visibility into the tower population and identify and isolate specific towers that have little (or zero) activity and are therefore potentially recorded at an inflated value on the books and records.
At the end of the process, companies whose auditors have applied big data and analytics will likely benefit from audit findings that may give them enhanced visibility into their data. And this in turn can translate into other business benefits, including the potential to identify emerging business issues.
- Robotic process automation (RPA)
RPA uses computer software and “bots” to perform repetitive rules-based tasks to boost capabilities and save time. The technology is beginning to gain popularity in audit for its ease of implementation and ability to provide immediate, measurable results.
RPA technology in audit is currently in its pilot stage and is being tested to help automate many manual processes. For example, when a company sends a document to its auditor today, that document is often manually downloaded, reviewed, and input into a database so it can be analyzed. RPA applications can help automate these processes to the point where the technology can help determine which data to consider for analysis. In this future scenario, the auditors may be able to redirect their time toward reviewing the final output and drawing conclusions.
What’s next for private company audits?
Technology can sometimes be intimidating to executives because it often raises questions of scalability and affordability – the good news, though, is that audit solutions can be right-sized to fit the unique needs of any company today.
Private companies are likely well-served to recognize that an audit driven by innovation can provide insights for them to consider that can help inform the future goals and direction of their company.
Mark Davis is the National Managing Partner of Deloitte Private Enterprises at Deloitte & Touche LLP.
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