Audit Technology and the audit
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.”