Au­dit Tech­nol­ogy and the au­dit

Spe­cial Re­port:

Accounting Today - - Coverstories - From page 12

Echo­ing the sen­ti­ment, Au­venir’s Myers said, “There’s the po­ten­tial for the rise of triple-ledger ac­count­ing. The idea where in­stead of just hav­ing the two par­ties keep ledgers, you’ve ac­tu­ally got a third party that is val­i­dat­ing the trans­ac­tions in real time. So it’s po­ten­tially go­ing to grant ac­cess to a trusted data source and al­low that val­i­da­tion. … Now, there’s some caveats in there and one is around … whether that record would be rec­og­nized by reg­u­la­tors and courts and so forth. The other com­po­nent in val­i­dat­ing is, de­pend­ing on the blockchain, you also need to then au­dit the blockchain and make sure the way that blockchain is struc­tured and man­aged and run is some­thing that could be de­pended on and there’s not an in­di­vid­ual that could con­trol the blockchain and change the blockchain. So we’ll see ac­count­ing pro­fes­sion­als po­ten­tially spend­ing more time val­i­dat­ing that in­for­ma­tion point be­tween the sys­tems and val­i­dat­ing the con­trols in place be­tween the two par­ties. It could change the con­cept of au­dit.”

Un­der­scor­ing the fu­ture op­por­tu­ni­ties for the pro­fes­sion, the AICPA has out­lined four po­ten­tial new roles for CPAS and CPA au­di­tors as a re­sult of blockchain:

Au­di­tor of smart con­tracts and or­a­cles: Smart con­tracts can be em­bed­ded in a blockchain to au­to­mate busi­ness pro­cesses. In light of this, con­tract­ing par­ties may want an as­sur­ance provider to ver­ify that the smart con­tracts are im­ple­mented with the cor­rect busi­ness logic. A CPA au­di­tor could also ver­ify the in­ter­face be­tween smart con­tracts and ex­ter­nal data sources that trig­ger busi­ness events.

Ser­vice au­di­tor of con­sor­tium blockchains: Be­fore launch­ing a new ap­pli­ca­tion on an ex­ist­ing blockchain plat­form or lever­ag­ing or sub­scrib­ing to an ex­ist­ing blockchain prod­uct, users may want in­de­pen­dent as­sur­ance as to the sta­bil­ity of its ar­chi­tec­ture. And, on an on­go­ing ba­sis, an in­de­pen­dent third party may need to pro­vide as­sur­ance as to the ef­fec­tive­ness of con­trols over a pri­vate blockchain.

Ad­min­is­tra­tor func­tion: This func­tion could val­i­date the en­force­ment and mon­i­tor­ing of the blockchain’s pro­to­cols, and be re­spon­si­ble for the ver­i­fi­ca­tion of iden­tity or a fur­ther vet­ting process to be com­pleted be­fore a par­tic­i­pant is granted ac­cess to a blockchain.

Ar­bi­tra­tion func­tion: For a per­mis­sioned blockchain, an ar­bi­tra­tion func­tion might be needed to set­tle dis­putes among con­sor­tium-blockchain par­tic­i­pants.

Brian Fox, pres­i­dent and founder of Con­fir­ma­tion, a provider of online au­dit con­fir­ma­tions, said he be­lieves that blockchain rep­re­sents op­por­tu­ni­ties for the pro­fes­sion but, at the same time, is­sued a word cau­tion.

“Blockchain is not go­ing to be the big, red ‘Easy’ but­ton. In fact, we’re go­ing to get our­selves in trou­ble if we don’t un­der­stand the tech­nol­ogy and what its true ap­pli­ca­tion is, in­stead of just hear­ing the buzz­words. There are true op­por­tu­ni­ties, but if all you’re do­ing is tak­ing what ex­isted be­fore the blockchain and putting it onto the blockchain, you haven’t ever lever­aged the tech­nol­ogy and its unique ca­pa­bil­i­ties.”

Added Fox, “There’s still a lot of proof of con­cepts that are be­ing worked on. Other than dig­i­tal cur­rency, there hasn’t been a lot of valid proof of con­cepts that are ac­tu­ally work­ing. There’s been some test cases and things, [but] I do think there are some sig­nif­i­cant op­por­tu­ni­ties.”

Pre­pare for suc­cess

With ro­bust tools at their fin­ger­tips and the abil­ity to ef­fi­ciently pro­vide deeper data anal­y­sis, au­di­tors are ide­ally po­si­tioned to take on a greater strate­gic role in the years ahead and de­liver higher-value in­sights to clients. Ac­cord­ing to in­dus­try ex­perts, that’s why it is im­por­tant that au­di­tors view such tech­nol­ogy as a friend, not a foe.

“At Case­ware, we be­lieve, at a core level, that the tra­di­tional au­dit of to­day is def­i­nitely chang­ing — new tech­nolo­gies are emerg­ing and must be em­braced in or­der to de­rive bet­ter busi­ness out­comes for au­dit clients. The role of the au­di­tor will not be re­placed but will be sig­nif­i­cantly shifted from a purely stan­dard au­dit role to a more strate­gic busi­ness ad­vi­sory role. Tech­nol­ogy will be there to help and sug­gest where the risk lies, putting au­di­tors in a po­si­tion to cre­ate more value for both the clients and the stake­hold­ers of the au­dit opin­ion. Tech­nol­ogy and the tech­nol­ogy driv­ers avail­able to­day em­power au­di­tors to do what they were meant to do — al­low for greater ef­fi­cien­cies to au­dit deeper and smarter,” said Ross Hamp­ton, head of busi­ness devel­op­ment for the Amer­i­cas at Case­ware, which pro­vides cloud-en­abled au­dit, fi­nan­cial re­port­ing and data an­a­lyt­ics so­lu­tions.

Said Robin Gros­set, chief tech­nol­ogy of­fi­cer of Mind­bridge An­a­lyt­ics, “Every­body talks about the dig­i­tal dis­rup­tion that is be­ing caused by tech­nolo­gies like artificial in­tel­li­gence and how it’s dis­rupt­ing many dif­fer­ent in­dus­tries. The best way to com­bat that dis­rup­tion is to en­gage with it. … Lever­age the tech­nol­ogy, see what it can do and learn by ex­pe­ri­ence. I think it’s very im­por­tant that peo­ple en­gage and learn by ex­pe­ri­ence.”

Through the ap­pli­ca­tion of ma­chine learn­ing and AI tech­nolo­gies, the Mind­bridge plat­form is de­signed to de­tect anoma­lous pat­terns of ac­tiv­i­ties, un­in­ten­tional er­rors, and in­ten­tional mis­state­ments.

Change can be scary but with the right mind­set, staff, train­ing and tools in place, au­di­tors can be well-po­si­tioned for suc­cess. “The skills and type of peo­ple you bring into your or­ga­ni­za­tion will be key. Your prac­tice will need for­ward-think­ing au­di­tors who are able to learn, adapt and move with the tech­nol­ogy that’s avail­able. Hav­ing the mind­set of how you take your pro­fes­sion and your prac­tice through this evo­lu­tion will be the best way to pre­pare for this dis­rup­tive change,” Hamp­ton said.

Added Bong of Au­dit­file, “The changes don’t have to be in­tim­i­dat­ing and they don’t have to be all or noth­ing. I would ar­gue that the change only seems more sig­nif­i­cant be­cause au­dit soft­ware is the last area to re­al­ize the sig­nif­i­cant ad­vance­ments of the cloud com­put­ing era. Right now, to­day, we al­ready have firms of all sizes, down to solo prac­ti­tion­ers, that are us­ing au­to­ma­tion and us­ing ma­chine learn­ing to work more ef­fi­ciently. I find that the big­gest shift is in the mind­set — cul­ti­vat­ing a cul­ture that em­braces fresh ideas and con­tin­u­ous learn­ing.”

Gram­lich rec­om­mends fine-tun­ing project man­age­ment within the firm, along with mak­ing in­cre­men­tal changes and se­cur­ing part­ner buy-in. “I think the best prac­tice that we’ve seen over the years is to have a ded­i­cated small group to start with im­ple­ment­ing a change. Whether that’s one group within an of­fice or one of­fice in a multi-of­fice setup. So, I would as­sign it to some­one to take that small group and then re­al­ize that they can’t do ev­ery­thing they were do­ing. Give them the time to ap­pro­pri­ately man­age that. Project man­age­ment within these firms, out­side of the big­gest, is re­ally lack­ing,” Gram­lich said.

Fox of Con­fir­ma­tion said it’s im­por­tant to also think about how fraud­sters will lever­age emerg­ing tech­nolo­gies and to not un­der­es­ti­mate the im­por­tance of train­ing staff on bet­ter fraud de­tec­tion tech­niques: “If our staff doesn’t un­der­stand how fraud hap­pens, we can’t hold them accountable and ex­pect they’re go­ing to catch fraud.”

Added Fox, “At Con­fir­ma­tion, that’s re­ally why I built this busi­ness 20 years ago, it was to lever­age tech­nol­ogy for the ben­e­fit of the ac­count­ing firms and for the au­di­tors. And it was to do two things: the con­ver­gence of ef­fi­ciency and fraud de­tec­tion us­ing tech­nol­ogy. And so, over the last 20 years, we’ve caught bil­lions of dol­lars of fraud and we’ve pro­vided tremen­dous ef­fi­ciency to the ac­count­ing firms.”

Woods of PMB Helin Donovan also sug­gests brush­ing up on your project man­age­ment skills and ask­ing the right ques­tions: How does this ef­fect our cur­rent pro­cesses? Do our cur­rent pro­fes­sion­als have the nec­es­sary skills, or can they learn the nec­es­sary skills, to op­er­ate with the new tech­nol­ogy? How does this ef­fect our clients? What is the cost of the new tool or tools? What re­turn will we see on the in­vest­ment in tools and train­ing?

“Once those ques­tions are an­swered, it’s much eas­ier to de­velop an ef­fec­tive im­ple­men­ta­tion plan that doesn’t dis­rupt op­er­a­tions more than is nec­es­sary,” Woods said. “I think pro­fes­sion­als in pub­lic ac­count­ing are a savvy group that are used to keep­ing up with an ever-chang­ing in­dus­try. How­ever, those that are more com­fort­able tak­ing on new chal­lenges and learn­ing com­pletely new skills are go­ing to be po­si­tioned for suc­cess.”

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