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When COVID-19 disrupted last year’s accounting and reporting cycle for companies everywhere, our auditors had the infrastructure they needed to conduct virtual audits: data-driven, digital audit technologies that the global EY organization has developed over the last decade.
But infrastructure requires the right culture to be meaningful. And, together, our people and our technologies proved to be remarkably resilient. At Ernst & Young LLP (EY US), we saw our 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, identifying risks in real time.
They allowed us to maintain high standards for audit performance and quality even at a moment of great disruption — confirming the reliability of financial reporting and helping to keep the capital markets transparent for all stakeholders.
As we look ahead, we are taking the lessons of 2020 to drive continuing improvement in audit quality, while creating a better experience for our clients and teams.
Lesson 1: The right technology can streamline project management and enable consistent execution in a virtual environment.
The challenges of the first remote close were not just about executing audits virtually. They were also about adjusting to a drastically altered business landscape. Nonetheless, in our audits of 2020 financial statements, we were able to accelerate the pace of work and complete more tasks before year-end and the start of busy season.
The efficiencies created by our online audit platform — EY Canvas — were crucial here. With EY Canvas, audit professionals at EY member firms around the world are trained to work with the same technology and to use it consistently. Because of that training, our people moved smoothly to operating remotely. The platform also enables our auditors to communicate a centralized plan for the audit and to monitor progress in real time, so important milestones have been reliably met despite the pandemic.
Our technologies also improved the audit experience for our clients. Some of our clients were understandably concerned about how audit teams working from home were going to safeguard sensitive financial information. 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. The client portal also eliminated repeat requests from audit team members and duplicate work for them, so 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 deliver consistently excellent service to our audit clients, even as the world around us changed overnight.
Lesson 2: Analytics helps audit teams — and audit clients — focus on key issues raised by the pandemic.
With EY Helix, our EY global organization has created a powerful suite of data analytics. When the pandemic hit last year, the overwhelming majority of our public company audit teams had already used the EY Helix general ledger analyzer and had fine-tuned the process for remote data capture and extraction.
Our teams’ ability to probe full populations of client data, rather than relying on statistical sampling, was critical as our clients navigated unexpected complexities in their accounting and reporting. For example, for one retail client, the audit team had captured broadscale data on assets for all its retail outlets pre-pandemic, though only a few were impaired at the time. When the pandemic shutdown created challenges for its entire fleet of stores, the audit team had all the relevant data it needed to evaluate the company’s impairment accounting.
With a data-driven audit, patterns and trends are revealed that wouldn’t be apparent in a traditional audit, allowing us to direct our follow-up efforts to the right areas, while giving our clients insights into their own business processes and controls. For example, 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.
The advanced analytics underpinning the digital audit can inform new strategies and pinpoint risks. That’s a compelling proposition as organizations everywhere shift course.
Lesson 3: A data-first audit is a higher-quality audit.
Given the many ways that the pandemic has changed the world, auditors need to see old processes with new eyes. Data can catalyze this objectivity and professional skepticism, 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 general ledger and subledger data into risk assessments helps EY teams to better understand the sources and flow of transactions, allowing them to ask more probing questions about possible material misstatements. A data-first approach can inform walk-throughs — particularly relevant when walk-throughs need to be conducted virtually. Also, a data-first audit is a continuous audit that allows companies to respond to findings with an immediate course correction, rather than waiting until year-end.
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.
Like everyone, we’re still absorbing the knowledge we gained from working through the pandemic and considering what it means for the future. But this much is certain: to deliver an audit that is responsive to our clients’ ever-changing risk profiles, we have to unlock the power of data.
As our teams expand their experience using data first, in a continuous audit that identifies risks in real time, we believe that financial reporting and audit quality will soar.