More companies are splitting the annual financial audit into two segments—data gathering and analysis—a move that could enable them to more easily outsource portions of the audit process to technology companies.
One-third of executives said they already are breaking down the audit process to some extent, while 44% said they are weighing making such changes, according to a report released Monday by Source Global Research.
Dividing the work could pave the way for companies to automate elements of the audit process, allowing them to free up human resources to focus on improving controls and preventing fraud.
“When clients decide to split a professional service, it paves the way for change in the competitive landscape, and that’s what’s happening in audit at the moment,” said Fiona Czerniawska, co-founder of Source Global, which surveyed 150 executives in the U.S. and U.K who are involved in the selection of external auditors. “People are already starting to act on this.”
Fifty-nine percent of executives said technology firms would gather data faster and at a lower cost than external accounting and audit firms, the report said. Sixty-one percent said technology firms would do a better job of automating financial processes than these firms, according to the report.
Collection of data by an outside technology firm at first would require assurance of the process by the auditor. Analysis of that data and assurance of the books are expected to remain firmly the domain of traditional auditors, as that work carries greater risk and requires specialized expertise, Ms. Czerniawska said.
Some executives expect to increase their reliance on professional services firms, such as external auditors, for more of that kind of specialized assurance work, particularly in the area of proofing the use of new technology in finance, the report said.
The increased digitization and automation of financial record-keeping and reporting has prompted many organizations to review how they approach the work involved in auditing this information each year.
Auditors now have the ability to test entire data sets, rather than just relying on small samples. In the past, auditors would select a group of transactions to examine the documentation and controls. Digital documentation and automated record-keeping are allowing auditors to cast a wider net without spending more time and effort.
“Part of the audit process—doing proper, representative, robust sampling—that part isn’t needed anymore if you can ensure in a systematic way that you’re looking at the complete data set and it can’t be tampered with,” Ms. Czerniawska said.
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